DBRS Comments on the Completion of EnerCare’s Service Experts Acquisition

DBRS Limited (DBRS) notes that EnerCare Solutions Inc. (ESI or the Company; rated BBB (high), Under Review with Negative Implications) announced yesterday the completion of its acquisition of SEHAC Holdings Corporation (Service Experts) for approximately USD 341 million. The acquisition was funded with USD 200 million of debt while the remainder was financed with a portion of an approximately $240 million bought deal offering of subscription receipts completed in March 2016.

DBRS placed ESI’s ratings Under Review with Negative Implications following the announcement of the acquisition because of the potentially more volatile earnings and cash flows as well as weaker expected credits metrics post-acquisition (please see the DBRS press release, “DBRS Places EnerCare Solutions Inc. Under Review with Negative Implications,” dated March 8, 2016, for more details). DBRS continues to evaluate the impact of the acquisition on ESI’s credit profile and will resolve the Under Review status in the coming weeks.

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

DBRS’s rating on ESI is based on the DBRS methodology Rating Companies in the Consumer Products Industry (August 2015); however, DBRS views ESI’s strong franchise as having a superior business risk profile than that of a traditional consumer products company. As a result, the Company is able to manage higher leverage metrics.

Overall, in DBRS’s assessment of the credit quality of ESI, DBRS factors in the following key items: (1) competition arising from regulatory changes; (2) effects of attrition on customer base; (3) stability of cash flow generated from customer base; (4) flexibility to increase rental rates; and (5) dependency on new home developments for growth.

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