DBRS Confirms Enwave Energy Corporation at A (low), Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating, the Senior Secured Notes (Senior Notes) rating and the Senior Term Facility (Term Facility) rating of Enwave Energy Corporation (Enwave or the Company) at A (low), all with Stable trends. The confirmations reflect Enwave’s success in integrating its 2017 acquisitions of district energy assets in London, Ontario (London District Energy), and a district energy system in Charlottetown, Prince Edward Island (PEI Energy Systems), into its existing operations (together, the Acquisitions). The confirmations also incorporate DBRS’s expectation that the Company’s credit metrics will likely improve over the next 12 months from current levels, which are modestly weaker than pre-Acquisitions credit metrics due to relatively high Acquisitions debt, but improved from the 2017 year-end level due to a full-year contribution from the Acquisitions.

Enwave maintains its strong market position with limited competition and significant barriers to entry. The customer base continues to grow and the Company expects to renew all customers contracts scheduled to expire in 2018. Enwave’s customer base remains well diversified going forward with strong customers in the government, hospital, commercial and data centre sectors. The Company’s system reliability remains high at 99.9% and this, combined with its cost competitiveness, should continue to support contract renewals going forward. Enwave’s contract profile improved as the commissioning of new customers and the renewal of existing customers increased the revenue weighted-average remaining life of contracts to 11.1 years from 10.4 years.

Despite improving diversification from the Acquisitions, the Company’s low cost-based Toronto operations remain the predominant source of cash flow and are forecast to represent approximately 84% of EBITDA in 2019. DBRS expects most of Enwave’s growth to occur in the Toronto system. DBRS notes that the Company is also in the process of completing an approximately 20-megawatt combined heat and power facility (CHP) in the London District Energy system that will sell energy to the Independent Electricity System Operator (rated A (high) with a Stable trend by DBRS) under a 20-year contract, which will further improve Enwave’s contractual profile.

The Company is expected to finance 2019 and 2020 capex for the Toronto growth and the London CHP project with draws on the credit facility and with shareholder equity. Enwave’s credit metrics for the last 12 months ended September 2018 were weaker than levels prior to the Acquisitions in 2016 and temporarily remained slightly below levels required to support the current ratings. DBRS expects key credit metrics to improve as new customers and projects are expected to come online in 2019 and 2020. To support the A (low) rating, DBRS expects Enwave to maintain its cash flow-to-adjusted debt ratios in the mid-12% range and its adjusted debt-to-EBITDA around the 6.0 times level on a sustained basis in upcoming quarters, otherwise a negative rating action could occur.

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

The principal methodology is Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry, 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.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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