DBRS Limited (DBRS Morningstar) confirmed Fortis Inc.’s (Fortis or the Company) Issuer Rating and Unsecured Debentures rating at A (low) and Fortis’ Preferred Shares rating at Pfd-2 (low). All trends are Stable. The rating confirmations reflect (1) Fortis’ strong consolidated and nonconsolidated credit metrics, solid liquidity, and stable regulatory and business risk profile in 2022; and (2) DBRS Morningstar’s expectation that Fortis will continue to maintain its currently strong financial risk profile in 2023 and over the medium term. The current ratings take into account Fortis’ debt being structurally subordinated to the debt issued at its regulated utility levels. DBRS Morningstar also considers mitigating factors to the structural subordination such as the diversification of regulatory jurisdictions, as well as the significant size, stability, and sustainability of cash flow.
The Company’s regulatory risk profile remains stable from the previous years, and DBRS Morningstar does not expect any adverse regulatory decision in 2023 that would have a material negative impact on Fortis’ current risk profile. The current ratings incorporate potential risks associated with regulatory lags, operational disruptions, and capital project executions at Fortis’ regulated utilities.
With respect to capital projects, Fortis plans its growth over the next five years to be mostly organic with capital expenditures (capex) for the 2023–27 period forecast to be approximately $22.3 billion. More than 99% of capex will be spent on regulated operations. This will further strengthen Fortis’ business risk profile as its regulated operations will become larger and more diversified. The required funds will mainly be financed with subsidiaries’ internally generated cash flow (net of dividends to Fortis) and debt issued at the subsidiaries. DBRS Morningstar believes that the funding plan should not have a material impact on Fortis’ consolidated and nonconsolidated metrics in the near to medium term.
Also, following the Company’s May 1, 2023, announcement that it entered into a definitive share purchase and sale agreement with a subsidiary of Enbridge Inc. (rated BBB (high) with a Stable trend by DBRS Morningstar) to sell its 93.8% ownership interest in the Aitken Creek Natural Gas Storage Facility in British Columbia and its 100% ownership interest in the Aitken Creek North Gas Storage Facility for approximately $400 million, DBRS Morningstar is of the view that this proposed transaction, if completed, should not materially affect Fortis’ current business risk profile but should improve its liquidity.
A positive rating action is possible should Fortis’ business risk profile improve significantly from the current level. DBRS Morningstar, however, would take a negative rating action if Fortis’ (1) business risk profile deteriorates significantly from a weakening in the credit quality of its major subsidiaries; (2) consolidated metrics fall below the “A” rating range for a sustained period; or (3) nonconsolidated metrics materially weaken from the current level, especially if the Company’s nonconsolidated debt-to-capital ratio increases substantially to above the 30% range on a long-term basis.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
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/396929 (May 17, 2022).
All figures are in Canadian dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616)
-- DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 20, 2022; https://www.dbrsmorningstar.com/research/404248)
-- DBRS Morningstar Global Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (October 26, 2022; https://www.dbrsmorningstar.com/research/404334)
The credit rating methodologies used in the analysis of this transaction can be found at:
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.
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 firstname.lastname@example.org.
The rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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