Morningstar DBRS Confirms Credit Ratings on AltaLink, L.P. at "A" and R-1 (low), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating of AltaLink, L.P. (ALP or the Company) and the credit rating on ALP's Senior Secured Notes at "A," as well as ALP's Commercial Paper credit rating at R-1 (low). Further, we concurrently confirmed the Issuer Rating and the credit rating on the Senior Unsecured Bonds of AltaLink Investments, L.P. (AILP or Holdco) at A (low). All trends are Stable. The credit ratings of AILP are based on (1) ALP's Issuer Rating, factoring in structural subordination, and (2) leverage and liquidity at the Holdco level, which is strong.

KEY CREDIT RATING CONSIDERATIONS
ALP's credit ratings are primarily based on the Company's large and stable transmission operation generating stable and predictable cash flows. We view the Alberta Utilities Commission's (AUC) regulatory framework as generally supportive for regulated electricity transmission, reflecting higher ROEs in 2024 and 2025 relative to prior years, a stable equity ratio in the capital structures, ALP's revenues being based on forecast operating expenses, and very good operating cost and capital cost recovery. ALP generates strong and very stable cash flow reflecting no commodity price risk, no volume risk, as well as the benefits of fixed monthly payments from a strong credit quality Alberta Electric System Operator (AESO). After the 2019-23 period of Flat-for-Five Year (no costs increased for customers), ALP's operations continued to remain strong in 2024 and to date in 2025, being consistently ranked in the top quartile in terms of cost efficiency, safety, and reliability by Electricity Canada.

In the context of future capital planning, ALP's capital expenditures (capex) for the next few years are expected to remain stable at the $340 million to $360 million level (estimated by Morningstar DRBS) . Although the AESO has identified approximately $1.5 billion in future transmission spending within ALP's service territory in AESO's long-term transmission plan for the Province of Alberta (Alberta; rated AA with a Stable trend), the AESO's plan has not been finalized. With respect to potential wildfire risk, ALP's transmission lines and infrastructure has significantly improved as ALP has spent $60 million in the 2019-23 period with an additional $29 million planned for 2024 and 2025 on wildfire mitigation activities. (all approved by the AUC). ALP has identified that only 15% of its transmission line lengths and 17% of its structures are in high-risk wildfire areas. Although the occurrence of wildfires has increased in recent years in Alberta, Morningstar DBRS continues to view ALP's wildfire risk exposure as an event risk and believes it is substantially mitigated by the Company's existing wildfire mitigation strategies, including system hardening, risk modelling, daily hazard forecasts, a proactive de-energization program, and operational practices.

ALP's Financial Risk Assessment remains supportive of the current credit ratings, as the Company has consistently generated a free cash flow surplus (net of distributions and capex). ALP's credit ratios improved modestly in 2024 and remained strong in Q1 2025. Revenue requirements for 2025 are expected to be slightly lower than 2024, reflecting a lower regulated ROE of 8.97% (compared with 9.28% for 2024). However, Morningstar DBRS does not expect this slight ROE decrease to have any material impact on ALP's cash flow, reflecting (1) ALP's consistent high level of cost efficiency and (2) that earnings on ROE only account for approximately 30% of revenue requirements. ALP's liquidity remains strong, reflecting its free cash flow surplus and sizable credit facilities. Based on ALP's current financing plan, ALP will only require modest funding for the next few years. As a result, we expect ALP's credit metrics and liquidity to remain strong to support the current credit ratings.

In assessing the credit ratings of AILP, Morningstar DBRS notes that its business risk profile and financial risk profile are mostly the same as those of ALP because AILP owns 99.99% of ALP and owns no other material assets and currently has no debt outstanding. The credit ratings of AILP are a notch lower than the Issuer Rating of ALP, reflecting the fact that debt issued by AILP is structurally subordinated to the debt issued by ALP. AILP relies entirely on cash flow in the form of distributions from ALP to service its debt and interest expenses. In assessing AILP's credit quality, we also consider its liquidity and financial leverage at the Holdco level. In this regard, AILP's current debt outstanding is minimal relative to total consolidated debt. AILP's liquidity is very solid, reflecting strong cash distributions from ALP and its $300 million undrawn and available credit facility at the end of June 2025.

CREDIT RATING DRIVERS
Morningstar DBRS notes that a positive credit rating action would be considered should ALP's credit metrics strengthen further, especially bringing the cash flow-to-debt ratio to above 15% on a sustained basis while maintaining its business risk profile stable at the currently strong level. A negative credit rating action, although unlikely given ALP's very-low-risk regulated transmission assets, could occur if there were a materially adverse regulatory decision or if ALP's key credit metrics deteriorated substantially to below the "A" range for a sustained period.

EARNINGS OUTLOOK
ALP has benefitted from predictable and stable earnings, which are almost entirely received from the AESO with no volume or commodity price risks. As expected, the Company's 2024 earnings improved modestly, driven by a higher allowed ROE (9.28% in 2024 compared with 8.50% in 2023) and continued cost efficiency for the year. Morningstar DBRS expects ALP's earnings for 2025 and over the medium term to remain stable, despite lower ROE in 2025 (8.97%), reflecting cost efficiency and expected modest rate base growth.

FINANCIAL OUTLOOK
ALP's key credit metrics are supportive of the current credit ratings. Morningstar DBRS expects the Company's credit metrics to remain stable, with a cash flow-to-debt ratio in the 12% to 13% range over the medium term. Morningstar DBRS expects annual capex to be about $340 million to $360 million in 2025. ALP expects to finance its capex with internally generated cash flows, which in Morningstar DBRS' view, is strong.

CREDIT RATING RATIONALE
ALP's credit ratings are supported by the stability of its regulated business with a supportive regulatory framework and large rate base, and its strong financial profile. The credit ratings are constrained by the regulatory risk resulting from the uncertainties faced by regulated utilities in the province, including (1) stranded asset risk associated with the Utility Asset Disposition policy; (2) uncertainties associated with Alberta's electricity policy; and (3) the AUC's potential disallowance of incurred cost (if deemed imprudent) or reversed previous decisions on regulatory matters.

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 at (May 16, 2025), https://dbrs.morningstar.com/research/454196.

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

(B) Weighting of FRA Factors
In the analysis of ALP, 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 ALP, 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 one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), 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 (May 16, 2025),https://dbrs.morningstar.com/research/454196

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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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