DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating, the Senior Secured Notes rating, and the Senior Term Facility rating of Enwave Energy Corporation (Enwave or the Company) at A (low). All trends remain Stable. The confirmations reflect Enwave’s continued strong competitive market position and operating performance. IFM Investors (IFM) and Ontario Teachers' Pension Plan Board (OTPP; rated AAA with a Stable trend by DBRS Morningstar) acquired Enwave in June 2021 for $2.8 billion. OTPP and IFM each own 50% of Enwave, and both have significant assets under management and substantial experience investing in infrastructure assets. DBRS Morningstar does not view the change in ownership as materially changing Enwave’s credit quality.
Enwave continues to maintain its strong market position, as it renewed all 23 customer contracts that were due to expire in 2021 and also commissioned five new customers in 2021. Enwave continues to grow and has signed new customer contracts, which are expected to be commissioned in future years. DBRS Morningstar expects that the new customer contracts will have a similar risk profile as the existing contracts. In 2021 Enwave completed its Western Expansion Phase 1 and Eastern Expansion Phase 1 in Toronto, which connected to contracted customer buildings. The completion of these projects provides Enwave with a larger service area in Toronto and provides the Company with the more opportunity to connect additional customers to its system.
The Company’s system reliability has historically been high and was greater than 99.9% for 2021. The Company’s revenue-weighted average contract length is approximately 12 years as calculated on a run-rate revenue basis. Enwave’s customer base remains well diversified with customers in the government, hospital, commercial, and data centre sectors. Enwave’s high system reliability, cost competitiveness, and high customer switching costs should continue to support strong contract renewals and growth into the future.
DBRS Morningstar expects that Enwave's cash flow-to-senior debt and its senior debt-to-EBITDA ratios for 2022 will remain in line with 2021 levels with increased EBITDA from new commissioned customers partially offset by draws on the revolving credit facility. Financial metrics are expected to improve in 2023 and thereafter as more customers come on line. DBRS Morningstar expects that Enwave's parent company will provide funds to Enwave to finance growth capital expenditure. DBRS Morningstar expects that Enwave will maintain its cash flow-to-adjusted debt ratio in the mid-12% range and its adjusted debt-to-EBITDA around the 6.0 times level. DBRS Morningstar may take a negative rating action if these metrics fall below this level on a sustained basis. Additionally, DBRS Morningstar notes that if Enwave increases their share of EBITDA from operations with a weaker business risk assessment than its Toronto operations could also result in DBRS Morningstar taking a negative rating action.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
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 (September 24, 2021; https://www.dbrsmorningstar.com/research/384922), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).
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The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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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