DBRS Maintains Fair Hydro Trust, Series 2018-1 and Series 2018-2 Notes Under Review

DBRS Limited (DBRS) maintains the following notes (collectively, the Notes) issued by Fair Hydro Trust (the Trust) Under Review following the recent announcement of Bill 87 amending the Ontario Fair Hydro Plan Act, 2017 (the FHPA):

-- 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

On March 21, 2019, the Government of Ontario introduced proposed legislation (Bill 87) that would amend the FHPA. Bill 87, if passed, will come into force on November 1, 2019. Pursuant to the proposed amendments, any payment obligations arising from the Notes issued by the Trust will become obligations of the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS). In addition, Ontario Power Generation Inc. (rated A (low) with a Stable trend by DBRS) acting as Financial Services Manager, will be responsible for the Fair Hydro Trust expenses due and payable after January 1, 2019.

Noteholders will no longer receive the diversification offered by Specified Consumers as the Clean Energy Adjustment charges will be eliminated, effectively placing repayment of the Notes entirely on the Province. Consistent with DBRS’s initial review of the Notes, a change in the credit profile of the Notes resulting from changes to the FHPA is expected to have a negative impact on the credit ratings assigned to the Senior Notes and the Subordinated Notes but not necessarily the Junior Subordinated Notes.

DBRS expects to take rating actions on the Notes if the proposed legislation is passed into law.

The Notes were originally placed Under Review on September 28, 2018, following public announcements by the Government of Ontario that may trigger the Limited Guarantee as it relates to the FHPA and the Notes issued by the Trust. On January 10, 2019, DBRS maintained its Under Review status on the Notes as no legislative changes to the FHPA had been introduced nor had the Limited Guarantee been exercised.

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

The principal methodology is Rating Canadian Structured Finance Transactions (Appendix: Legislated Utility Collections), which can be found on dbrs.com under Methodologies & Criteria.

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.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada