DBRS Morningstar Confirms Enova Power Corp.’s Issuer Rating at “A,” Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating for Enova Power Corp. (Enova or the Company) at “A” with a Stable trend. The Issuer Rating is based on (1) Enova’s regulated electricity distribution business in Ontario, which provides a predictable source of earnings and cash flows; (2) Enova’s strong credit metrics; and (3) support from Enova’s municipal shareholders. The Stable trend reflects DBRS Morningstar’s expectation that Enova’s business risk and credit metrics will remain stable in the medium term.

Enova was formed after the merger of Waterloo North Hydro Inc. (WNH) and Kitchener-Wilmot Hydro Inc. (KWH) in September 2022. Enova’s relatively low business risk profile is supported by the supportive regulatory framework in Ontario with almost all earnings generated by their regulated electricity distribution businesses. Under the current regulatory regime, shareholders of Enova will retain the benefit of operating synergies for up to 10 years following the merger. The Company should be able to benefit from the operating efficiencies and cost savings with the WNH and KWH’s franchise areas being connected. The Company has forecast capital expenditure (capex) to grow modestly year over year, reaching around $48 million in 2032, which is in line with historical levels. DBRS Morningstar expects Enova to continue to fund its capex in a prudent manner in order to maintain leverage within with the deemed regulatory capital structure of 60% debt.

Enova’s financial risk assessment remains supportive of the “A” rating. The Company’s key credit metrics were strong and its liquidity remained solid in 2022, reflecting sizable credit facilities, stable and timely cash flow, and low debt. Based on the Company’s projected budget and its long-term leverage target, DBRS Morningstar expects Enova’s credit metrics to remain stable in the medium term and a positive rating action is unlikely in the near term. Although it is unlikely, should Enova’s business risk profile or its credit metrics weaken significantly from the current levels on a sustained basis, DBRS Morningstar could take a negative rating action.

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/416784 (July 4, 2023).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616)

The credit rating methodologies used in the analysis of this transaction can be found at:
https://www.dbrsmorningstar.com/about/methodologies.

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.

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 [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit 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.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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