DBRS Maintains Emera Inc. Under Review with Developing Implications

DBRS Limited (DBRS) has today maintained its status of Under Review with Developing Implications placed on the BBB (high) Issuer Rating, Medium-Term Notes and Pfd-3 (high) Preferred Shares – Cumulative ratings of Emera Inc. (Emera or the Company). This rating action has been placed since September 4, 2015, following the announcement that the Company agreed to acquire TECO Energy Incorporated (TECO) for a total consideration of approximately USD 10.4 billion, including assumption of USD 3.9 billion of debt (the Acquisition). The rating action reflects DBRS’s view that the Acquisition would have a modestly positive impact on Emera’s business risk assessment (BRA), while the impact on the financial risk assessment (FRA) is uncertain, since the financing plan has not been finalized. The Acquisition is expected to close by mid-2016. The Acquisition received TECO shareholder approval in December 2015 and approval from the Federal Energy Regulatory Commission (FERC) in January 2016. The closing of the Acquisition remains subject to certain other regulatory and government approvals, including approval by the New Mexico Public Regulation Commission and the satisfaction of customary closing conditions.

The net effect of the Acquisition on Emera’s BRA is expected to be modestly positive. One of the primary BRA benefits is that Emera’s earnings mix would improve, with a larger percentage of earnings generated from regulated businesses, since all of TECO’s operations are regulated. Pro forma for the Acquisition, regulated earnings contribution would be greater than 80% of consolidated earnings in 2016, which would be in the upper range of DBRS’s regulated earnings mix range expectation (75% to 85%). In addition, Emera would benefit from greater geographic and regulatory diversification. However, these positive BRA factors would be partly offset by heightened integration risk, given the material size of the Acquisition. One of the risk elements identified in the DBRS press release dated September 4, 2015 – uncertainty associated with the timing of the TECO coal divestiture (which could result in potential liability issues) – has been eliminated, as the coal unit was divested on September 21, 2015.

It remains uncertain as to how Emera plans to ultimately finance the Acquisition. DBRS will further review the Company’s financing plan when it is finalized. Upon final review, if the Company finances the Acquisition in such a way that its non-consolidated debt-to-capital structure exceeds 30% and its other non-consolidated credit metrics deteriorate significantly for the current rating category without corrective action within a reasonable time frame, then a negative rating action is likely to occur.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry; Preferred Share and Hybrid Criteria for Corporate Issuers; and Rating Holding Companies and Their Subsidiaries, which can be found on our website under Methodologies.

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