DBRS Confirms Alberta PowerLine Limited Partnership at A (low) with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and the ratings on the Long-Term Senior Bonds and the Medium-Term Senior Bonds (collectively, the Senior Bonds) of Alberta PowerLine Limited Partnership (APL or ProjectCo) at A (low) with a Stable trend. ProjectCo is the special-purpose vehicle (SPV) created to design, build, finance, operate and maintain the Fort McMurray West 500-kilovolt Transmission Project (the Project) under a 36.8-year Project Agreement with the Alberta Electric System Operator (AESO). The Project includes construction of a new approximately 500-kilometre long transmission line from a substation near Edmonton to a substation in Fort McMurray. The Project achieved financial close on October 2, 2017, after which the 21-month construction period began.

APL achieved energization on March 29, 2019, earlier than the scheduled Target Energization Date (June 27, 2019), as construction progressed better than planned. There was no change in the operating term or to the debt amortization schedule. Early energization helped ProjectCo receive additional revenues for three months, primarily retained in an equity distribution account after meeting operating costs. Since achieving energization, operations have progressed smoothly without any unplanned outages or major deductions as of August 31, 2019.

On June 24, 2019, both sponsors -- Canadian Utilities Limited (CU; rated “A” with a Stable trend by DBRS) and Quanta Services, Inc. (Quanta) -- decided to sell their 100% equity stake in APL to Genesee Lake Holding Corp., a consortium comprising TD Greystone Asset Management (TD Greystone, 55% share) and IST3 Investment Foundation (IST3, 45% share). As part of the equity sale process, various Indigenous communities were given an option to collectively subscribe up to 40% of the equity stake. DBRS understands that the Indigenous communities have subscribed to the entire 40% stake offered, thereby revising the ownership share of the consortium to 60%, with TD Greystone holding a 33% share and IST3 holding 27%.

DBRS does not expect the proposed changes to the project/governance documents and financing agreements to affect APL’s ratings, as these would be made to primarily reflect the governance-related changes and new ownership structure. ATCO Electric Ltd. (ATCO Electric) will continue as the Operations, Maintenance and Lifecycle Contractor (O&M Contractor) for APL. DBRS considers the continuity of ATCO Electric as the O&M Contractor supportive of the rating, as ATCO Electric has significant expertise and experience in operating transmission and distribution lines.

DBRS has not received a substantive non-consolidation opinion for this transaction. However, DBRS has relied on APL’s ownership structure (i.e., multiple owners) and the bankruptcy remoteness features of the existing financing to take comfort in case of a default or bankruptcy of any of the equity owners. Further, DBRS notes that no changes are expected to the financing structure of ProjectCo or to the tariffs due to this transaction. APL has also filed applications with AESO and the Alberta Utilities Commission to seek approval for the transaction and expects to receive the approval ahead of transaction close (i.e., year-end 2019). The projected minimum debt-service coverage ratio of 1.25 times remains unchanged and is supportive of the A (low) rating along with the strong operating and maintenance resilience of 61.9% and lifecycle resilience of 108.2%.

While not currently envisioned, DBRS may take a negative rating action should the Project experience material deterioration in operating performance and worsening trend of unplanned outages, leading to significant deductions and deterioration in credit metrics. Notwithstanding, DBRS notes that operating requirements are of low complexity and fairly straightforward for an experienced contractor such as ATCO Electric. DBRS views a positive rating action as unlikely in the near term.

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

The principal methodology is Rating Public-Private Partnerships, 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting 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.

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