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

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”/R-1 (low) with Stable trends by DBRS).

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 of greater than 20% (non-consolidated basis) and (3) reliance on a single operating subsidiary for cash distributions to AILP.

OpCo’s big build capital program has now been completed and OpCo’s capital expenditures (capex) will normalize from 2018 onwards, while its earnings and operating cash flow will benefit from the higher rate base. As a result, ALP has begun to significantly increase the flow of its excess cash, which is not required to fund normalized capex or maintain the regulatory capital structure, up to AILP. Over the course of 2017, AILP used almost all of these distributions to pay down approximately $70 million of short-term revolving debt and retired an additional $80 million of revolving debt in Q1 2018. DBRS expects AILP to continue this for the remainder of 2018, and potentially pay down a significant portion of its credit facilities by the end of the year. At the same time, OpCo is expected to be fully self-sufficient, with operating expenses and capex met from internally-generated cash flows, although DBRS notes that AILP was required to provide approximately $80 million to OpCo in Q4 2017. A positive rating action on AILP could be warranted should ALP, on a sustained basis, no longer require additional cash injections and its higher cash distributions to AILP continue to be used to pay down debt and improve the debt-to-capital ratios and financial flexibility. AILP stated its intention to continue using free cash flow for this purpose, as well as help contribute to expansion opportunities which may be pursued by its affiliate, BHE Canada, L.P.

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 and DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries 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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