Morningstar DBRS Places Hydro Ottawa Holding’s Ratings Under Review With Developing Implications Following Its Announced Corporate Reorganization

DBRS Limited (Morningstar DBRS) placed all ratings of Hydro Ottawa Holding Inc. (Hydro Ottawa or the Company) Under Review with Developing Implications. This follows the Company's May 21, 2024, announcement of a consent solicitation for approval from its Senior Unsecured Debentures holders to facilitate a corporate reorganization of Hydro Ottawa and its subsidiaries (the Corporate Reorganization). The Company will transfer its interests in the regulated business, Hydro Ottawa Limited, and certain subsidiaries to a new subsidiary, Hydro Ottawa Capital Corporation (HOCC). HOCC will assume Hydro Ottawa's obligations under the debentures and certain credit facilities, releasing the Company from these obligations.

Following the Corporate Reorganization, HOCC will hold only Hydro Ottawa’s regulated utility and modest nonregulated ancillary businesses, along with the related debt. As such, Morningstar DBRS believes HOCC’s business risk profile will be stronger than the Company’s current profile. Morningstar DBRS additionally notes that the remaining nonregulated operations, including Energy Ottawa Inc.’s power generation business and its associated non-recourse project-financed debt, will be transferred to another new subsidiary, Hydro Ottawa Energy Services Inc.

Morningstar DBRS intends to resolve the Under Review with Developing Implications status once the Corporate Reorganization is approved by the Ontario Energy Board, the existing Hydro Ottawa debenture holders, and other stakeholders.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Hydro Ottawa, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Hydro Ottawa, the FRA factors were considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Hydro Ottawa, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:
Global Methodology for Rating Companies in the Regulated Utility and Independent Power Producer Industries (April 15, 2024), https://dbrs.morningstar.com/research/431184.

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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@morningstar.com.

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.

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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