DBRS Comments on Proposed Merger Involving Veridian Corporation

DBRS Limited (DBRS) notes today that Veridian Corporation (Veridian; rated “A” with a Stable trend), Oshawa Power and Utilities Corporation, and Whitby Hydro Energy Corporation have jointly announced their intention to investigate a merger and potentially create a new, larger utility (the New Entity). Veridian’s distribution system operates with approximately 120,000 customers. Together, the three entities currently service more than 220,000 customers. This transaction is subject to negotiation of a definite agreement that must be approved by all shareholders and regulatory approvals. DBRS will further assess credit implication of the transaction as more information becomes available.

The transaction, as it currently stands, could have a modestly positive impact on the business risk assessment of Veridian, as the New Entity is expected to create meaningful synergetic benefits. Under the current regulatory regime, shareholders retain the benefit of operating synergies following a merger for up to ten years. However, the New Entity will be exposed to integration and early rebasing risk. Where a rate application is required before ten years, synergetic benefits would be less than projected.

DBRS expects the New Entity to have its key credit metrics commensurate with the “A” rating range. Based on their latest financial results and DBRS estimates, all three utilities have key metrics well within the “A” rating range.

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

The applicable methodology is Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry (October 2015), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com