DBRS Confirms TransAlta Utilities Corporation at A (low) with a Stable Trend

DBRS has today confirmed the rating of TransAlta Utilities Corporation’s (TAU or the Company) Secured Debentures at A (low) with a Stable trend, largely based on the continued strength of the cash flows generated from its generating facilities subject to Alberta power purchase agreements (APPAs).

Approximately 91% of the Company’s production is sourced from facilities with legislatively-mandated APPAs, which expire between 2013 and 2020 and are ultimately backed by the Alberta Balancing Pool. Availability remains a key factor in TAU’s performance, and the Company experienced fewer planned and unplanned outages in 2006 as the major maintenance program it embarked upon reached its peak at the end of 2005. As a result, stronger cash flow-to-debt and interest coverage ratios have been achieved.

The key challenge facing TAU continues to be the risk of unplanned outages due to the age of its plants and its limited diversification, with 79% of its generating capacity derived from older coal-fired units. However, the Company’s life cycle maintenance program is expected to result in fewer unplanned outages and greater capital efficiency.

DBRS has incorporated the following assumptions in TAU’s rating: (1) TAU will continue to generate strong cash flow from operations (excluding cash flow generated from the inter-company transactions with its parent), sufficient to cover its annual capital expenditures. TAU has generated average cash flow from operations of approximately $235 million in the last four years. (2) Its life cycle maintenance program will mitigate the length and severity of outages, while keeping costs down. (3) The already significant inter-company transactions will be limited for the purposes of financial optimization.

To obtain a copy of the full report, please click on the links below or contact us at info@dbrs.com.

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