DBRS Places Enercare Solutions Inc. Under Review with Negative Implications

DBRS Limited (DBRS) placed the BBB Issuer Rating and Senior Notes rating of Enercare Solutions Inc. (ESI or the Company) Under Review with Negative Implications. The rating actions are based on higher leverage expected as part of its acquisition by Brookfield Infrastructure Partners L.P. and its institutional partners (the Acquisition; please see the DBRS press release, “DBRS Places Enercare Solutions Inc. Under Review with Developing Implications Following Acquisition Announcement” dated August 1, 2018, for more details).

Pro forma the Acquisition, DBRS projects ESI’s cash flow-to-external debt ratio will fall to around 16% while the external debt-to-EBITDA ratio will increase to above 4.0 times (x). At the last review, DBRS noted that, if these two key credit metrics remain below the threshold for the BBB rating category (20% and 3.5x, respectively), a negative rating action could occur. DBRS intends to resolve the Under Review rating action once the Acquisition closes. If the higher leverage materializes as presented, DBRS will likely downgrade ESI’s ratings by one notch to BBB (low). Should ESI’s key credit metrics see further deterioration, additional negative rating actions may occur. Conversely, if the Company’s key credit metrics recover to the BBB rating range on a sustained basis, a positive rating action may occur.

Notes:
The principal methodologies are Rating Companies in the Consumer Products Industry (August 2018) and DBRS Criteria: Guarantees and Other Forms of Support (January 2018) which can be found on dbrs.com under Methodologies. 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 can manage higher-leverage metrics.

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

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.

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