DBRS has announced that it:
has today downgraded the Issuer Rating of Innergex Renewable Energy Inc. (Innergex or the Company) to BB (high) from BBB (low) and the Preferred Shares rating to Pfd-4 (high) from Pfd-3 (low). DBRS has also changed the trends to Stable from Negative. When the trends were changed to Negative from Stable last August, DBRS stated that, considering the business risk profile of Innergex’s contracted renewable power portfolio and the structural protections of a non-recourse, project-financing strategy, deconsolidated leverage (i.e., debt at the holding company level) of over 30% and consolidated leverage of over 60% are viewed as not appropriate for maintaining investment-grade ratings. The ratings downgrade reflects DBRS’s view that Innergex’s aggressive financing strategy will result in weaker balance sheet strength driven by high dividend payouts and ongoing growth plans.
Although Innergex has planned to raise $125 million common equity in the coming months, DBRS expects the Company’s dividend payouts to remain high relative to earnings and to continue eroding the equity base. The high levels of dividends are also unsustainable given the Company’s announced growth plan, including the construction of seven projects with a total of approximately $812 million in spending expected for the next few years. With the debt portion of the funding plan, Innergex’s consolidated leverage ratio is expected to rise. In the absence of substantial corrective measures, DBRS no longer expects Innergex’s financial profile to remain consistent with investment-grade ratings. While the deconsolidated debt-to-capital ratio has improved to 30.4% from 32.3% in 2012, the consolidated total debt-to-capital and cash flow-to-total debt ratios have further weakened to 64.6% and 4.6%, respectively.
It will be most interesting to see what happens tomorrow for these issues, given that RON.PR.A was hammered after its downgrade (although it has since recovered about half of the losses sustained on that tumultuous day). One thing that might mitigate the damage is that the Innergex issues are not included in either ZPR’s holdings or in CPD’s holdings, since INE.PR.A has only 3.4-million shares outstanding (closing today at 24.95-98) and INE.PR.C has only 2-million shares outstanding (closing today at 23.65-74).
[…] the wake of yesterday’s DBRS downgrade to Pfd-4(high), INE.PR.A, a FixedReset, was down 5.56% (total return – it went ex-dividend) and INE.PR.C, a […]