Morningstar DBRS Assigns Rating of BB With Stable Trend to Capital Power's Subordinated Notes Series 3

DBRS Limited (Morningstar DBRS) assigned a rating of BB with a Stable trend to Capital Power Corporation's (CPC or the Company) 7.95% Fixed-to-Fixed Rate Subordinated Notes, Series 3, due September 9, 2082, (Subordinated Notes Series 3). This action follows CPC completing its solicitation of consents (the Consent Solicitation; see Morningstar DBRS press release dated July 29, 2024, for more details). The Consent Solicitation was approved by over 66 2/3% of the holders of the outstanding principal of the $350 million 7.95% Fixed-to-Fixed Rate Subordinated Notes, Series 1, due September 9, 2082 (Subordinated Notes Series 1).

The completion of the Consent Solicitation resulted in the approval of the extraordinary resolution to amend the Subordinated Notes Series 1 indenture to provide the right of exchange of the Subordinated Notes Series 1 with the Subordinated Notes Series 3. With the extraordinary resolution approval, the Subordinated Notes Series 1 are converted into Subordinated Notes Series 3. Morningstar DBRS notes that the Subordinated Notes Series 3 have the same terms and conditions as the Subordinated Notes Series 1 with the provision for the delivery of preferred shares upon the occurrence of certain bankruptcy and related events removed. As a result, the Subordinated Notes Series 3 will rank pari passu with the 8.125% Fixed-to-Fixed Subordinated Notes, Series 2, due June 5, 2054 (the Subordinated Notes Series 2).

Following the conversion of the Subordinated Notes Series 1 to the Subordinated Notes Series 3, Morningstar DBRS has discontinued its rating on the Subordinated Notes Series 1. Morningstar DBRS has also concurrently renamed the Subordinated Notes Series and Series 3 as Subordinated Notes. The categorization as Subordinated Notes will encompass all future subordinated notes issued by CPC that rank pari passu with the Subordinated Notes Series 2 and Series 3.

Prior to the discontinuation of the Series 1 Notes ratings, Morningstar DBRS placed the Series 1 Notes Under Review with Developing Implications. The Subordinated Notes Series 1 and Subordinated Notes Series 2 ranked equally in right of payment until the occurrence of certain bankruptcy and related events, at which time the Subordinated Notes Series 1 would have automatically converted into preferred shares, whereas the Subordinated Notes Series 2 did not have this provision. As a consequence, the Subordinated Notes Series 1 would rank below the Subordinated Notes Series 2 based on Morningstar DBRS' Hierarchy Principle, as outlined in the Morningstar DBRS "Credit Ratings Global Policy." Because of Morningstar DBRS' Hierarchy Principle, the Subordinated Notes Series 1 would have been rated one notch below the Subordinated Notes Series 2. (Please see the Morningstar DBRS press release dated June 5, 2024, for more details.)

The credit rating assigned to this newly issued debt instrument is based on the credit rating of an already-outstanding debt series of the above-mentioned debt instrument.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) 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 Factors in Credit Ratings ((August 13, 2024) at https://dbrs.morningstar.com/research/437781).

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors
In the analysis of CPC, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of CPC, 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 CPC, 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 (27 June 2024) https://dbrs.morningstar.com/research/435127

Morningstar DBRS credit ratings may use 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 methodologies have also been applied:

Morningstar DBRS Global Corporate Criteria (15 April 2024)
https://dbrs.morningstar.com/research/431186

Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (13 August 2024)
https://dbrs.morningstar.com/research/437781

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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