DBRS Places Fair Hydro Trust Notes Under Review

DBRS Limited (DBRS) placed the ratings of the following notes (collectively, the Notes) issued by Fair Hydro Trust (the Trust) Under Review :

-- 3.357% Senior Notes due May 15, 2033, Series 2018-1 rated AAA (sf), Under Review with Negative Implications
-- 3.52% Senior Notes due May 15, 2038, Series 2018-2 rated AAA (sf), Under Review with Negative Implications
-- 3.637% Subordinated Notes due May 15, 2033, Series 2018-1 rated AA (sf), Under Review with Negative Implications
-- 3.834% Subordinated Notes due May 15, 2038, Series 2018-2 rated AA (sf), Under Review with Negative Implications
-- 3.957% Junior Subordinated Notes due May 15, 2033, Series 2018-1 rated A (sf), Under Review with Developing Implications
-- 4.214% Junior Subordinated Notes due May 15, 2038, Series 2018-2 rated A (sf), Under Review with Developing Implications

The rating action reflects recent public announcements by the Government of Ontario that may trigger the Limited Guarantee as it relates to the Ontario Fair Hydro Plan Act, 2017 (FHPA) and the Notes issued by the Trust. The Public Accounts of Ontario report released on September 21, 2018, disclosed the following: “In September 2018, the government made a decision to make a future change to the Ontario Fair Hydro Plan Act, 2017 to cancel the Global Adjustment Refinancing component as designed, including reducing the amount of the current electricity price reduction to be borne by future ratepayers, and making any recovery from future ratepayers optional.” Pursuant to the Change of Law Protection Agreement, this may constitute a Protection Event (as defined in the Change of Law Protection Agreement) and may further cause the exercise of the Limited Guarantee (as defined in the Change of Law Protection Agreement) provided by the Province of Ontario (the Province). If the Limited Guarantee is exercised, the Notes will be repaid when they become due and payable from amounts made available by the Province. In addition, upon the exercise of the Limited Guarantee, noteholders will not be entitled to collections from Clean Energy Adjustments should they be recovered from Specified Consumers (as defined in the FHPA).

As noted in DBRS’s rating reports issued with respect to the Notes above, DBRS expects the exercise of the Limited Guarantee will affect the credit ratings of the Notes assigned, as the repayment of the Notes will be subject to the risk of the Province (currently rated AA (low) with a Stable trend by DBRS).

Resolving the Under Review status of the Notes is dependent on the timing and details of the proposed legislative changes by the Government of Ontario, as they relate to the affected notes, which is currently uncertain. DBRS will continue to monitor the situation and take appropriate rating action, if warranted.

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

The principal methodologies are Rating Canadian Structured Finance Transactions (Appendix: Legislated Utility Collections) and Legal Criteria for Canadian Structured Finance, 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 not participate in the rating process for this rating action. DBRS did have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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