DBRS Confirms All Ratings of Fortis Inc. at BBB (high) and Pfd-3 (high) with Stable Trends

DBRS Limited (DBRS) confirmed Fortis Inc.’s (Fortis or the Company) Issuer Rating at BBB (high), its Unsecured Debentures rating at BBB (high) and its Preferred Shares rating at Pfd-3 (high). All trends are Stable.

The confirmations reflect (1) the successful integration of ITC Holdings Corp. and its subsidiaries (ITC) since the acquisition in October 2016 (the ITC Acquisition); (2) the Company’s strong business risk profile as approximately 95% of EBITDA (97% of assets) were generated from regulated utilities; and (3) an improvement of consolidated and non-consolidated credit metrics. The ratings take into account Fortis’s structural subordination and mitigation factors such as the diversification of cash flow.

Based on DBRS’s review of the Company’s 2017 financial performance and its operational performance, including the success of the ITC integration into Fortis’s system, DBRS maintains the view that the ITC Acquisition modestly improves Fortis’s business risk profile with respect to size, scale and diversification. The total consolidated mid-year 2017 rate base, which excludes the Waneta Expansion, increased to approximately $24.6 billion as at December 31, 2017. This makes Fortis one of the largest holding companies of regulated assets in North America. At the end of 2017, low-risk transmission assets, electric distribution assets and natural gas distribution assets accounted for approximately 37%, 44% and 16% of consolidated assets, respectively. The remaining non-regulated assets are under long-term contracts. Together, Fortis’s portfolio generates strong, predictable and stable cash flow to service its debt and other financial obligations. Based on the Company’s current strategy, DBRS expects Fortis to pursue organic growth, particularly within its regulated subsidiaries. With this strategy, Fortis’s business risk profile is expected to remain stable over the near to medium term. Fortis’s consolidated capital expenditures, mostly in the regulated business, are estimated to be approximately $3.2 billion in 2018, which should result in solid growth in the regulated rate base.

From a consolidated financial profile perspective, most key credit metrics remained strong for the current ratings as at the end of 2017. From a non-consolidated perspective, DBRS notes that two key credit metrics have improved significantly since the ITC Acquisition. The non-consolidated debt-to-capital was reduced to below 27% (approximately 32% as at the end of 2016), and the cash flow-to-nonconsolidated debt increased to 16.8%, almost back to the pre-ITC Acquisition level of approximately 18%. Given the current business risk profile, should these two ratios further improve from the current levels, DBRS could consider a positive rating action. However, a significant weakening of the Company’s business risk profile and/or a material deterioration of non-consolidated credit metrics could pressure the current ratings.

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

The principal methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry Methodology (September 2017); DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries (December 2017); and DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (December 2017), which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

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