DBRS Confirms AltaLink Investments, L.P. at BBB, Stable

DBRS Limited (DBRS) confirmed the Issuer Rating and the Senior Unsecured Bonds rating of AltaLink Investments, L.P. (AILP) at BBB with Stable trends. The rating confirmations are supported by the strong credit quality of AILP’s wholly owned operating subsidiary, AltaLink, L.P. (ALP or OpCo; rated “A” with a Stable trend by DBRS; see DBRS AltaLink, L.P. press release dated September 28, 2017).

AILP’s ratings are notched down from OpCo’s rating to reflect the following: (1) structural subordination of the debt at AILP relative to OpCo, (2) relatively high leverage at the AILP level and (3) reliance on a single operating subsidiary for cash distributions to AILP.

OpCo’s “big build” capital program has essentially wound down and OpCo’s capital expenditures is expected to normalize, while its earnings and operating cash flow will benefit from a higher rate base. As a result, DBRS expects excess cash, which is not required to maintain the regulatory capital structure, will flow up to AILP. DBRS notes that AILP has begun to pay down debt in the first half of calendar 2017 on the strength of significant increases in distribution payments from ALP, reducing short-term revolving debt by more than $100 million during this time period. At the same time, construction risk at the OpCo level is no longer a material factor and AILP is not expected to be required to invest additional cash into OpCo. As a result, a positive rating action could be warranted should ALP’s higher cash distributions continue to be used to pay down debt and improve debt to capital ratios and financial flexibility. AILP has stated its intention to continue using free cash flow for this purpose, as well as to explore expansion opportunities.

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 principal methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry and DBRS Criteria: Rating Holding Companies and Their Subsidiaries, which can be found on our website under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had have access to the accounts and other relevant internal documents of the rated entity or its related entities.