Morningstar DBRS Comments on Hydro One's Acquisition of a Minority Stake in East-West Tie

DBRS Limited (Morningstar DBRS) notes that Hydro One Networks Inc. (Hydro One Inc. (HOI) rated A (high) with a Stable trend by Morningstar DBRS) has entered into an agreement to acquire a 48% stake in East-West Tie Limited Partnership (East-West Tie; rated A (low) with a Stable trend by Morningstar DBRS) for $257 million. Morningstar DBRS does not expect this transaction to have an impact on East-West Tie's credit rating as (1) NextEra Energy Canada, LP, will continue to hold its 48% stake and operate the assets, (2) East-West Tie's current regulatory regime is approved until 2027, and (3) as such, its operations and policies are not expected to change because of this acquisition. Morningstar DBRS also does not expect this transaction to have a material impact on HOI given the comparatively large size of its asset base ($35 billion as at September 30, 2024). The transaction will close upon satisfaction of customary closing conditions.

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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781/ (August 13, 2024).

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
A) Weighting of BRA Factors
In the analysis of HOI and East-West Tie, the BRA factors were considered in the order of importance contemplated in the methodology.

B) Weighting of FRA Factors
In the analysis of HOI and East-West Tie, 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 HOI and East-West Tie, 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 (November 25, 2024), https://dbrs.morningstar.com/research/443429

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 methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781
-- Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186

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 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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