DBRS Confirms Énergir Inc. at “A” and R-1 (low), Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and the First Mortgage Bonds (FMB) and the Senior Secured Notes (the Notes) ratings of Énergir Inc. (Énergir or the Company) at “A” as well as its Commercial Paper (CP) rating at R-1 (low), all with Stable trends. Énergir’s ratings are based on the credit quality of Énergir, L.P. (the Partnership), which guarantees the Company’s FMBs, the Notes and a secured credit facility that supports the CP program. Énergir is the general partner of the Partnership and serves as its financing entity.

The Partnership’s business risk profile continues to be underpinned by its portfolio of regulated utilities, which provides stable earnings and cash flows. The Partnership’s regulated natural gas distribution utility in Québec, Énergir-QDA (approximately 62% of EBITDA in the last 12 months ended December 31, 2018 (LTM F2019), is regulated by the Régie de l’énergie (the Régie). Regulation under the Régie remains supportive of the “A” rating with Énergir-QDA currently operating under a cost-of-service regime with a reasonable allowed return on equity (ROE) of 8.90% and deemed equity of 46% (including 7.5% of preferred shares). Regulation for the Partnership’s Vermont utilities (approximately 36% of LTM F2019 EBITDA), which include Green Mountain Power Corporation and Vermont Gas Systems, Inc., have also remained reasonable with allowed ROEs of 9.30% and 8.50%, respectively, on deemed equity of 49.9% and 50.0%, respectively.

DBRS notes that the Partnership has been pursuing opportunities in non-regulated segments, particularly in energy production, services and storage. For F2019, the Partnership intends to invest about $180 million in solar projects at its wholly owned subsidiary, Standard Solar Inc., a vertically integrated power project contractor, operator, developer and owner. While earnings and cash flows from the non-regulated segment are typically more volatile because of the higher associated volume risk, DBRS notes that these investments have remained relatively modest compared with capex for the Partnership’s regulated operations. Additionally, under the trust deed, the Partnership’s interest in non-regulated energy-related activities and non-energy-related activities must not exceed 10% of total non-consolidated assets (4.98% as at December 31, 2018) and non-energy-related activities may not exceed 5% of total non-consolidated assets (none as at December 31, 2018). As such, regulated operations continue to represent the large majority of the Company’s activities.

The Partnership’s key credit metrics remained steady and commensurate with the “A” rating in LTM F2019. DBRS expects the Partnership’s financial risk profile to remain stable and the Partnership to continue funding any free cash flow deficits as a result of the capex program ($540 million for F2019) prudently with a mix of debt and equity to maintain the current ratings.

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, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and Other Forms of Support, 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.

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.

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