DBRS Maintains the Under Review with Developing Implications Status of Algonquin Power Co.

DBRS Limited (DBRS) has today maintained the status of Under Review with Developing Implications for the BBB (low) Issuer Rating and Senior Unsecured Debentures rating of Algonquin Power Co. (APCo or the Company). APCo is wholly owned by Algonquin Power & Utilities Corp. (APUC or the Parent), a holding company with interests in APCo and Liberty Utilities Co. (LUC). The ratings of APCo, as well as the ratings of APUC and Liberty Utilities Finance GP1 (debt guaranteed by LUC), were placed Under Review with Developing Implications on February 10, 2016, following the announcement of an agreement and plan of merger pursuant to which LUC will indirectly acquire The Empire District Electric Company and its subsidiaries (the Empire Transaction; see the DBRS February 10, 2016, press release for details). APCo’s ratings were placed Under Review with Developing Implications because the credit quality of APCo could be indirectly affected should the credit profile of the Parent significantly deteriorate following the Empire Transaction. This reflects DBRS’s view that APCo partly relies on the Parent to provide equity injections to keep key financial metrics within the rating category. In addition, in the unlikely event that the Parent’s debt levels increase significantly following the Empire Transaction, the Parent may require more dividends from APCo to service its debt.

Today’s maintenance of the Under Review with Developing Implications status follows DBRS’s further review of available information on the timing, sizing and various financing sources for the Empire Transaction. It is DBRS’s opinion that the financial impact on APUC’s credit metrics and any resulting impact on APCo’s credit profile remain unknown, as APUC’s financing plan has not been finalized. DBRS expects that by the end of 2016 or early 2017, APUC’s financing plan for the Empire Transaction will be finalized, allowing DBRS to resolve APCo’s Under Review with Developing Implications status. DBRS also expects that APCo will not issue any debt to support the Empire Transaction.

DBRS has reviewed the 2015 and Q1 2016 performance of APCo and believes that the Company’s credit metrics have moved solidly into the BBB range. The improvement of the Company’s credit metrics reflects relatively stable generation output from the existing generation projects and incremental output from the newly completed wind and solar projects, largely in the United States, in 2014 and early 2015. DBRS has also reviewed the Company’s financing plan for its large capital expenditures program in 2016 (approximately $450 million to $600 million for development projects, including joint ventures) and is of the view that the financing plan would not materially weaken the Company’s credit metrics in 2016, although DBRS expects some very modest deterioration. Based on DBRS’s expectations, the Company’s 2016 metrics are expected to be consistent with the current ratings.

The ratings of APCo are further supported by (1) long-term contracts (power purchase agreements) with solid credit counterparties, (2) the Company’s re-contracting risk and exposure to volume risk inherent in wind and run-of-the-river renewable power generation companies and (3) manageable operational risk.

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 methodology is Rating Companies in the Independent Power Industry (June 2016), which can be found on our website under Methodologies.

This rating was initiated at the request of the rated entity.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.