DBRS Upgrades AltaLink Investments, L.P. to BBB (high), Changes Trends to Positive from Stable

DBRS Limited (DBRS) upgraded the Issuer Rating and the Senior Unsecured Bonds rating of AltaLink Investments, L.P. (AILP) to BBB (high) from BBB. DBRS also changed the trends on both of the ratings to Positive from Stable. The rating upgrades are a result of AILP’s decreasing non-consolidated leverage, which currently stands at 18.5% as of March 31, 2019 (a reduction from 24.2% as of March 31, 2018), and the expectation that the non-consolidated leverage will continue to decrease as AILP pays down its short-term and long-term debt with distributions received from its wholly owned subsidiary, AltaLink, L.P. (ALP or OpCo; rated “A”/R-1 (low) with Stable trends by DBRS). Underpinning the rating upgrade is ALP’s strengthened cash-flow-generation ability as a result of the Alberta Electricity System Operator (AESO) directed investments from 2011 to 2015, which has resulted in a greatly expanded rate base. DBRS believes that the future cash needs of both ALP and AILP are well anticipated and has changed the trends on AILP’s ratings to Positive from Stable based on the expectation that the non-consolidated leverage will continue to decrease.

ALP’s capex has been normalizing since 2016, and its earnings and operating cash flow is benefiting from the lower capex spend and the AUC’s 2018–2020 Generic Cost of Capital (GCOC) decision. As a result, ALP significantly increased the flow of its excess cash to AILP in 2018. This excess cash is not required either to fund normalized capex or to maintain the regulatory capital structure. Over the course of the year, AILP used almost all of these distributions to pay down approximately $194.5 million of short-term revolving debt, opting to not to renew one of its two operating lines of credit when they became due in December 2018. An additional $56.5 million of revolving debt was retired in Q1 2019. At the same time, ALP has been self-sufficient through all of 2017 and 2018, with operating expenses and capex met from internally generated cash flows. Only an injection of $77.8 million was required in Q4 2017, caused by the back-ended spend profile of one capex project; notwithstanding this, cash-flow generation was positive over the entire year at a net of $180.9 million. ALP did not require any cash investment in 2018, and this is expected to continue through 2019 and 2020. AILP has indicated that free cash flow will continue to be used for deleveraging purposes, as well as to help contribute to expansion opportunities that may be pursued by its affiliate, BHE Canada, L.P.

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 and DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries, 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.

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