DBRS Confirms Ratings of Capital Power Corporation

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares of Capital Power Corporation (CPC or the Company) at Pfd-3 (low) with a Stable trend. CPC’s Preferred Shares rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB). Please see the CPLP rating report dated March 20, 2015, for more information on the credit quality of CPLP. The one-notch differential in the ratings of CPC and CPLP reflects the structural subordination at CPC.

In 2014, CPC’s deconsolidated operating cash flows continued to support its common and preferred shares dividend payments ($68 million and $22 million, respectively). In addition, through the CPC Dividend Reinvestment Program (DRIP), CPC also provided $37 million in dividend reinvestment to common share DRIP participants. CPC’s deconsolidated operating cash flows primarily consist of distributions from its 82% ownership in CPLP and interest income from the subordinated debt issued to CPLP. Although distributions from CPLP could be curtailed if the viability of CPLP were to need safeguarding, CPLP has historically provided stable distributions to its equity holders (approximately $102 million in 2014 net to CPC). DBRS expects CPLP to maintain a stable course of distributions to CPC in the medium term.

CPC’s financial risk profile is based on its deconsolidated credit metrics. As CPC has no bonds/debentures issued at the parent level and is not expected to issue any debt in the foreseeable future, its adjusted leverage primarily consists of its preferred shares outstanding, which are treated as debt by DBRS. In the adjusted debt-to-capital calculation, the amount of preferred shares over the 20% preferred shares-to-equity threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferreds and minority interest) is treated as debt by DBRS. In 2014, CPC had $464 million of preferred shares outstanding, of which $67 million was treated as debt. As such, CPC’s unconsolidated debt-to-capital ratio was approximately 3% in 2014, which remains supportive of the current rating category. In addition, the unconsolidated fixed charge coverage ratio is expected to remain high at around five times.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Companies in the Independent Power Producer Industry, Rating Holding Companies and Their Subsidiaries and Preferred Share and Hybrid Criteria for Corporate Issuers, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.