Category: Issue Comments

Brookfield Renewable Partners L.P. has announced:

that it has determined the fixed distribution rate on its Class A Preferred Limited Partnership Units, Series 7 (“Series 7 Units”) (TSX: BEP.PR.G) for the five years commencing February 1, 2021 and ending January 31, 2026.

Series 7 Units and Series 8 Units

If declared, the fixed quarterly distributions on the Series 7 Units during the five years commencing February 1, 2021 will be paid at an annual rate of 5.50% ($0.343750 per unit per quarter).

Holders of Series 7 Units have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on January 18, 2021, to reclassify all or part of their Series 7 Units, on a one-for-one basis, into Class A Preferred Limited Partnership Units, Series 8 (“Series 8 Units”), effective January 31, 2021.

The quarterly floating rate distributions on the Series 8 Units will be paid at an annual rate, calculated for each quarter, of 4.47% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly distribution rate in respect of the February 1, 2021 to April 30, 2021 distribution period for the Series 8 Units will be 1.11799% (4.585% on an annualized basis) and the distribution, if declared, for such distribution period will be $0.279498 per unit, payable on April 30, 2021.

Holders of Series 7 Units are not required to elect to reclassify all or any part of their Series 7 Units into Series 8 Units.

As provided in the unit conditions of the Series 7 Units, (i) if Brookfield Renewable determines that there would be fewer than 1,000,000 Series 7 Units outstanding after January 31, 2021, all remaining Series 7 Units will be automatically reclassified into Series 8 Units on a one-for-one basis effective January 31, 2021; or (ii) if Brookfield Renewable determines that there would be fewer than 1,000,000 Series 8 Units outstanding after January 31, 2021, no Series 7 Units will be reclassified into Series 8 Units. There are currently 7,000,000 Series 7 Units outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 8 Units effective upon reclassification. Listing of the Series 8 Units is subject to Brookfield Renewable fulfilling all the listing requirements of the TSX and, upon approval, the Series 8 Units will be listed on the TSX under the trading symbol “BEP.PR.H”.

BEP.PR.G was issued as a Preferred Units FixedReset 5.50%+447M550, that commenced trading 2015-11-25 after being announced 2015-11-17. It must be remembered that the taxation status of the distributions is complex and – what’s more – can vary wildly from year to year.

Power Financial Corporation has announced (on January 4):

the applicable dividend rates for its Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series P (the “Series P shares”) and Non-Cumulative Floating Rate First Preferred Shares, Series Q (the “Series Q shares”).

With respect to any Series P shares that remain outstanding after February 1, 2021, holders thereof will be entitled to receive quarterly fixed non-cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Power Financial. The dividend rate for the 5-year period from and including January 31, 2021 to but excluding January 31, 2026 will be 1.998%, being equal to the 5-year Government of Canada bond yield determined as of today plus 1.60%, in accordance with the terms of the Series P shares.

With respect to any Series Q shares that remain outstanding after February 1, 2021, holders thereof will be entitled to receive quarterly floating rate non-cumulative preferential cash dividends, if, as and when declared by the Board of Directors of Power Financial. The dividend rate for the 3-month floating rate period from and including January 31, 2021 to but excluding April 30, 2021 will be 1.715%, being equal to the 3-month Government of Canada Treasury Bill yield determined as of today plus 1.60%, calculated on the basis of the actual number of days in such quarterly period divided by 365, in accordance with the terms of the Series Q shares.

Beneficial owners of Series P shares or Series Q shares who wish to exercise their conversion right should communicate with their broker or other nominee to ensure their instructions are followed so that the registered holders of Series P shares or Series Q shares can meet the deadline to exercise such conversion right, which is 5:00 p.m. (Eastern Time) on January 18, 2021.

PWF.PR.P was issued as a a FixedReset, 4.40%+160 that commenced trading 2010-6-29 after being announced 2010-6-17. It reset to 2.306% in 2016; I recommended against conversion but there was a 20% conversion to PWF.PR.Q anyway.

PWF.PR.Q is a FloatingReset, Bills+160, that arose via a partial conversion from PWF.PR.P in 2016.

Well, it didn’t take long for Quadravest to take advantage of the post-consolidation price of FTN.PR.A. A new overnight deal is being marketted:

Financial 15 Split Corp. (the “Company”) is pleased to announce it will undertake an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC World Markets Inc., Scotia Capital Inc. and RBC Capital Markets, and will also include BMO Capital Markets, Canaccord Genuity Corp., Industrial Alliance Securities Inc., Richardson Wealth Limited, Raymond James Ltd., Desjardins Securities Inc., Hampton Securities, Mackie Research Capital Corporation, and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $10.15 per Preferred Share to yield 6.7% and the Class A Shares will be offered at a price of $9.80 per Class A Share to yield 15.4%.

The closing price on the TSX of each of the Preferred Shares and the Class A Shares on January 5, 2021 was $10.45 and $9.66, respectively.

Since inception of the Company, the aggregate dividends declared on the Preferred Shares have been $9.08 per share and the aggregate dividends declared on the Class A Shares have been $20.53 per share, for a combined total of $29.61. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal	National Bank of Canada	Bank of America Corp.
The Bank of Nova Scotia	Manulife Financial Corporation	Citigroup Inc.
Canadian Imperial Bank of Commerce	Sun Life Financial Services of Canada Inc.	Goldman Sachs Group Inc.
Royal Bank of Canada	Great-West Lifeco Inc.	JP Morgan Chase & Co.
The Toronto-Dominion Bank	CI Financial Corp.	Wells Fargo & Co.

The Company’s investment objectives are:

Preferred Shares:

• to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of 6.75% annually, to be set by the Board of Directors annually subject to a minimum of 5.50% until 2025; and
• on or about the termination date, currently December 1, 2025 (subject to further 5-year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:

• to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors; and
• to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2025 (subject to further 5-year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. EST on January 7, 2021. The offering is expected to close on or about January 14, 2021 and is subject to certain closing conditions including approval by the TSX.

So the Whole Units are being offered at 19.95, while the December 31, 2020, NAVPU was 18.60, a premium of 7.26%. What a great business this is!

Cenovus Energy Inc. has announced (on January 4):

that its strategic combination with Husky Energy Inc. has closed. The transaction creates a resilient integrated energy leader that is well positioned to provide superior returns for investors over the long term, as well as strong environmental, social and governance (ESG) performance.
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Husky preferred shareholders exchanged each Husky preferred share for one Cenovus preferred share with substantially identical terms.
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The Cenovus preferred shares Series 1, Series 2, Series 3, Series 5 and Series 7 have been listed on the TSX under the ticker symbols CVE.PR.A, CVE.PR.B, CVE.PR.C, CVE.PR.E and CVE.PR.G. The Cenovus warrants and Cenovus preferred shares are expected to commence trading on the TSX at the opening of market on January 6, 2021
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With the close of the transaction, Husky has become a wholly owned subsidiary of Cenovus and will remain as such until completion of a planned amalgamation among the two entities. Upon amalgamation, Cenovus will become the obligor under Husky’s existing long-term notes and other direct obligations.

So the table of changes is pretty simple:

Brookfield Asset Management Inc. has announced:

that it has made a proposal to Brookfield Property Partners L.P. (“BPY”) (NASDAQ: BPY; TSX: BPY.UN) to acquire all of the limited partnership units of BPY that it does not already own (“BPY units”) at a value of $16.50 per BPY unit, or $5.9 billion in total value.
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Brookfield will ensure that holders of the Class A stock of Brookfield Property REIT Inc. (NASDAQ: BPYU) will be entitled to receive the same per share consideration as BPY unitholders under the proposal upon exchange of their shares into BPY units. It is also expected that the BPYU 6.375% Series A Cumulative Redeemable Preferred stock would be redeemed at its par value of $25.00 per share in connection with the proposed transaction. Brookfield is not proposing to acquire other securities of BPY and its subsidiaries, which are expected to remain outstanding.

Brookfield Property Partners L.P. has responded:

As outlined in Brookfield’s press release, the proposal provides that each unitholder can elect to receive consideration per Unit of a combination of (i) 0.4 Brookfield Shares, (ii) $16.50 in cash, and/or (iii) 0.66 BPY Class A Cumulative Redeemable Perpetual Preferred Units with a liquidation preference of $25.00 per Unit (“BPY Prefs”), subject in each case to pro-ration based on a maximum of 59.5 million Brookfield Shares (42% of the total value of Units), maximum cash consideration of $2.95 billion (50% of the total value of Units), and a maximum value of $500 million in BPY Prefs (8% of the total value of the Units). If unitholders collectively elect to receive in excess of $500 million in BPY Prefs, the amount of BPY Prefs can increase to a maximum of $1 billion, offset against the maximum amount of Brookfield Shares. The maximum amount of cash consideration would not be affected.

As outlined in Brookfield’s press release, Brookfield is not proposing to acquire other securities of BPY and its subsidiaries, including existing preferred units of BPY and preferred shares of wholly owned subsidiary Brookfield Office Properties Inc., which are expected to remain outstanding. However, it is expected that holders of the Class A Stock, par value $0.01 per share, of BPYU would receive the same per share consideration as BPY unitholders under the proposal upon exchange of their shares into BPY units. It is also expected that the BPYU 6.375% Series A Cumulative Redeemable Preferred Stock would be redeemed at its par value of $25.00 per share in connection with the proposed transaction.

BPO preferreds responded …:

BPY.UN had its 52-week high of a little over $26 in January, 2020, and closed today at $21.80, up $3.39 (+18.41%) on the day.

Similarly, BPO.PR.A (to choose an issue at random) remains significantly below its 52-week high, as investors speculate whether anybody, anywhere, will want to occupy a piece of property ever again.

It’s odd that many of the preferred shares performed comparably to the Capital Units today after both parties stressed that they were “expected to remain outstanding”, but that’s show business! The preferreds still yield considerably more than equally rated (Pfd-3) issues, so if one has a firm belief that people will resume shuttling between the office, the mall and the rental apartment, the shares might be of continuing interest! However, a lot will depend on just how the privatized company is financed …

Standard & Poor’s has announced:

• On Dec. 15, 2020, Cenovus Energy Inc. and Husky Energy Inc. announced that substantially all their respective shareholders and Husky’s preferred stock shareholders approved the companies’ proposed combination.
• Following receipt of all necessary regulatory approvals, both companies announced the completion of the combination on Jan. 4, 2021.
• S&P Global Ratings lowered its long-term issuer credit and senior unsecured debt ratings on Husky to ‘BBB-‘ from ‘BBB’. S&P Global Ratings also lowered its global scale and Canada scale preferred share ratings to ‘BB’ and ‘P-3’, respectively, from ‘BB+’ and ‘P-3(High)’, respectively.
• S&P Global Ratings removed the ratings from CreditWatch with negative implications, where they were placed on Oct. 25, 2020, when the two companies announced their intention to merge.
• The stable outlook reflects our expectation that Cenovus, with the addition of Husky’s integrated operations, will retain the strong operating performance of its steam-assisted gravity drainage (SAGD) assets, and benefit from improved cash flow stability resulting from its expanded integrated midstream and downstream operations.

S&P Global Ratings today took the rating actions listed above. The combination with Cenovus has reduced the ownership interest of Husky’s major shareholder group, which includes CK Hutchison Holdings Ltd. (A/Stable/–), from about 70% to 27% of Cenovus. At this ownership level, and with the resulting proportionate representation on the Cenovus board of directors, CK Hutchison and its related entities now hold a minority interest in the company. At this ownership level, we do not believe this shareholder group has influence over Cenovus’ strategic decision-making. As a result, the previous one-notch uplift we applied to our credit rating on Husky, which was supported by our opinion that Husky was a moderately strategic investment for CK Hutchison, would not be applied to our rating on Cenovus.
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Based on our expectation that future asset performance will remain consistent with the recent track record, we are projecting a weighted-average, two-year (2021-2022) funds from operations (FFO)-to-debt ratio in the 24%-26% range.

A negative rating action on Cenovus would also apply to Husky. Assuming the pro forma company’s business risk profile is unchanged during our 24-month outlook period, we would lower the rating if the company’s FFO-to-debt and DCF-to-debt ratios deteriorated below the minimum levels needed to support the ‘BBB-‘ rating. Specifically, we could lower the rating if our estimate of the combined entity’s weighted-average FFO-to-debt ratio approached 20% with limited prospects of improving. This would most likely occur if differentials materially exceed our assumptions, or if leverage increased.

Based on our view that the combined entity’s business risk profile is unlikely to strengthen and support an upgrade, we could nevertheless raise the rating if the company’s cash flow and leverage metrics improve. We could raise the rating to ‘BBB’, if the company were able to increase and maintain its weighted-average adjusted FFO-to-debt ratio above 45%. Above this threshold, the financial risk profile and a ‘BBB’ rating would accommodate higher levels of discretionary spending than is currently factored into our base-case assumptions. Alternatively, we could also raise the rating if the adjusted FFO-to-debt ratio increased and remained at the upper end of our 30%-45% range, and the company also maintained financial policies focused on generating strong DCF, such that it sustained a weighted-average DCF-to-debt ratio above 10%. We believe this could occur with strengthening hydrocarbon prices.

Affected issues are HSE.PR.A, HSE.PR.B, HSE.PR.C, HSE.PR.E and HSE.PR.G.

Update: DBRS has announced that it:

downgraded Husky Energy Inc.’s (Husky or the Company) Issuer Rating and Senior Unsecured Notes and Debentures rating to BBB from BBB (high) following the close of the previously announced combination with Cenovus Energy Inc. (Cenovus; rated BBB with a Stable trend). DBRS Morningstar also downgraded Husky’s Preferred Shares – Cumulative rating to Pfd-3 from Pfd-3 (high) and its Commercial Paper rating to R-2 (middle) from R-2 (high). All trends are Stable. The actions remove the ratings from Under Review with Negative Implications where they were placed on October 25, 2020, when the combination was announced. DBRS Morningstar discontinued its rating on the Company’s Preferred Shares as the Husky preferred shares have been exchanged for Cenovus preferred shares as part of the combination.
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DBRS Morningstar assessed the consolidated business risk profile of the combined entity to be moderately stronger relative to Husky’s stand-alone business risk profile. However, the rating downgrades reflect DBRS Morningstar’s opinion that the impact of the stronger business risk profile is more than offset by weakness in the combined entity’s consolidated financial risk profile, relative to Husky’s stand-alone financial risk profile, because of a material increase in indebtedness and resulting weaker financial metrics (see DBRS Morningstar’s press release “DBRS Morningstar Places Husky Energy Inc. Under Review–Negative Following Agreement to Combine with Cenovus Energy Inc.,” dated October 25, 2020).

Cenovus, as the resulting combined entity, plans to pursue a conservative financial policy and prioritize deleveraging the balance sheet over the medium term. A sizable free cash flow (FCF; cash flow after capital expenditures and dividends) surplus is expected by 2022 as earnings and operating cash flow increase based on the assumption of recovering crude oil prices, improved refining margins, and the realization of expected synergies from the combination. DBRS Morningstar expects key credit metrics, using its base-case commodity price assumptions, to remain relatively weak in 2021 before materially improving in 2022 (lease-adjusted debt-to-cash flow around 2.5 times). DBRS Morningstar expects Cenovus to maintain a strong liquidity position.
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Given DBRS Morningstar’s current commodity price assumptions, a rating upgrade is unlikely over the next two years. However, a negative rating action may result if the projected improvement in credit metrics does not materialize because of weaker-than-expected crude oil prices and refining margins and/or the combined entity is unable to realize the projected synergies as planned.

With respect to Cenovus, DBRS announced:

DBRS Limited (DBRS Morningstar) upgraded Cenovus Energy Inc.’s (Cenovus or the Company) Issuer Rating and Senior Unsecured Debt rating to BBB from BBB (low) following the close of the previously announced combination with Husky Energy Inc. (Husky; rated BBB with a Stable trend). All trends are Stable. The actions remove the ratings from Under Review with Positive Implications where they were placed on October 25, 2020, when the combination was announced. DBRS Morningstar also assigned a rating of Pfd-3 with a Stable trend to the Preferred Shares – Cumulative issued by Cenovus as part of the combination. Post-closing, Husky is a wholly owned subsidiary of Cenovus. Both entities are to be amalgamated, after which Cenovus will continue as the surviving entity and become the obligor under Husky’s existing long-term notes and other direct obligations.

TC Energy Corporation has announced:

that it does not intend to exercise its right to redeem its Cumulative Redeemable First Preferred Shares, Series 5 (Series 5 Shares) and Cumulative Redeemable First Preferred Shares, Series 6 (Series 6 Shares) on January 30, 2021. As a result, subject to certain conditions:

(a) the holders of Series 5 Shares have the right to choose one of the following options with regard to their shares:

to retain any or all of their Series 5 Shares and continue to receive a fixed rate quarterly dividend; or

to convert, on a one-for-one basis, any or all of their Series 5 Shares into Series 6 Shares and receive a floating rate quarterly dividend, and
(b) the holders of Series 6 Shares have the right to choose one of the following options with regard to their shares:

to retain any or all of their Series 6 Shares and continue to receive a floating rate quarterly dividend; or

to convert, on a one-for-one basis, any or all of their Series 6 Shares into Series 5 Shares and receive fixed rate quarterly dividend.
Should a holder of Series 5 Shares choose to retain their shares, such shareholders will receive the new annual fixed dividend rate applicable to Series 5 Shares of 1.949% for the five-year period commencing January 30, 2021 to, but excluding, January 30, 2026. Should a holder of Series 5 Shares choose to convert their shares to Series 6 Shares, holders of Series 6 Shares will receive the floating quarterly dividend rate applicable to the Series 6 Shares of 1.655% for the three-month period commencing January 30, 2021 to, but excluding, April 30, 2021. The floating dividend rate will be reset every quarter.

Should a holder of Series 6 Shares choose to retain their shares, such shareholders will receive the floating quarterly dividend rate applicable to Series 6 Shares of 1.655% for the three-month period commencing January 30, 2021 to, but excluding, April 30, 2021. The floating dividend rate will be reset every quarter. Should a holder of Series 6 Shares choose to convert their shares to Series 5 Shares, holders of Series 5 Shares will receive the new fixed quarterly dividend rate applicable to the Series 5 Shares of 1.949% for the five-year period commencing January 30, 2021 to, but excluding, January 30, 2026.

Beneficial owners of Series 5 Shares and Series 6 Shares who want to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 5 p.m. (EST) on January 15, 2021. Any notices received after this deadline will not be valid. As such, it is recommended that this be done well in advance of the deadline in order to provide the broker or other nominee with time to complete the necessary steps.

Beneficial owners of Series 5 or Series 6 Shares who do not provide notice or communicate with their broker or other nominee by the deadline will retain their respective Series 5 Shares or Series 6 Shares, as applicable, and receive the new dividend rate applicable to such shares, subject to the conditions stated below.

The foregoing conversions are subject to the conditions that: (i) if TC Energy determines that there would be less than one million Series 5 Shares outstanding after January 30, 2021, then all remaining Series 5 Shares will automatically be converted into Series 6 Shares on a one-for-one basis on January 30, 2021, and (ii) if TC Energy determines that there would be less than one million Series 6 Shares outstanding after January 30, 2021, then all of the remaining outstanding Series 6 Shares will automatically be converted into Series 5 Shares on a one-for-one basis on January 30, 2021. In either case, TC Energy will issue a news release to that effect no later than January 22, 2021.

Holders of Series 5 Shares and Series 6 Shares will have the opportunity to convert their shares again on January 30, 2021 and every five years thereafter as long as the shares remain outstanding. For more information on the terms of, and risks associated with an investment in the Series 5 Shares and the Series 6 Shares, please see the prospectus supplement dated June 17, 2010 which is available on sedar.com or on our website.

TRP.PR.C was issued as a FixedReset, 4.40%+154, that commenced trading 2010-06-29 after being announced 2010-6-17. Notice of extension was published in 2015 and the issue reset to 2.263%. There was 9% conversion to the FloatingReset TRP.PR.I.

TRP.PR.I is a FloatingReset, Bills+154, that arose from a partial conversion from the FixedReset TRP.PR.C.

Atlantic Power Corporation has announced:

that the Toronto Stock Exchange (“TSX”) has approved Atlantic Power’s renewal of its normal course issuer bid (“NCIB”) for the following series of the Company’s convertible unsecured subordinated debentures and its common shares and APPEL’s renewal of its NCIB for each of the following series of its preferred shares (collectively, the “Public Securities”):

a) the 6.0% Series E Convertible Unsecured Subordinated Debentures due January 31, 2025 (the “6.0% Cdn$115.0 Million Debentures”) (TSX: ATP.DB.E).

b) the common shares (the “Common Shares”) (TSX:ATP);

c) the 4.85% Cumulative Redeemable Preferred Shares, Series 1 (the “Series 1 Preferred Shares”) (TSX: AZP.PR.A);

d) the Cumulative Rate Reset Preferred Shares, Series 2 (the “Series 2 Preferred Shares”) (TSX: AZP.PR.B); and

e) the Cumulative Floating Rate Preferred Shares, Series 3 (the “Series 3 Preferred Shares”) (TSX: AZP.PR.C).

Atlantic Power and APPEL intend to commence their NCIBs on December 31, 2020. The NCIBs will expire on December 30, 2021 or such earlier date as the Company and/or APPEL complete their respective purchases pursuant to the NCIBs or terminate them at their option. Under its current NCIB which expires December 30, 2020, Atlantic Power has purchased 7,476,213 of its common shares at an average price of Cdn$2.85. There were no purchases of its 6.0% Series E Convertible Unsecured Subordinated Debentures. APPEL has purchased 381,794 of its Series 1 Preferred Shares at an average price of Cdn$15.17; 62,365 of its Series 2 Preferred Shares at an average price of Cdn$15.20; and 120,000 of its Series 3 Preferred Shares at an average price of Cdn$17.90.

So to put those 2020 numbers into tabular form:

So a total of about $8.9-million was spent on preferreds, about 45% of the amount spent on common. Certainly not enough to cause a scarcity, but every little bit helps!

DBRS has announced that it:

placed Artis Real Estate Investment Trust’s (Artis or the REIT) Issuer Rating and Senior Unsecured Debentures rating of BBB (low) and Preferred Trust Units rating of Pfd-3 (low) Under Review with Negative Implications. These rating actions reflect DBRS Morningstar’s expectation that the announcement of Artis’ current management team leaving the REIT may have a negative impact on its credit risk profile and may impair its ability to reduce leverage in a timely manner.

Artis announced an agreement through which certain members of the management team, including the chief executive officer (CEO) and the chief financial officer (CFO), are stepping down as a result of activist unitholder (the Sandpiper Group) pressure. Sandpiper has been advocating against Artis for the spinoff of its retail portfolio, cutting costs, and increasing distributions to unitholders as well as other initiatives. The REIT also announced the reconstitution of its board and a new interim CEO, who is also the CEO of Sandpiper. DBRS Morningstar notes that Artis had been engaged in a strategic debt reduction initiative, including the retail portfolio spinoff, that had the potential to stabilize Artis’ credit profile within an acceptable time frame (see DBRS Morningstar’s commentary “Artis REIT’s Proposed Spin-Off and Debt Reduction Could Stabilize Rating Trend,” dated September 9, 2020).

As a result of the uncertainty created by the change in management, DBRS Morningstar is placing Artis’ ratings Under Review with Negative implications. As part of its review, DBRS Morningstar will determine the new management team’s commitment to and updated plans for lowering leverage. Should DBRS Morningstar determine that the REIT’s successful reduction of leverage is likely, DBRS Morningstar would likely change the trend for Artis’ ratings to Stable upon completion of the review. Conversely, DBRS Morningstar would likely take a negative rating action on Artis’ ratings should it determine that management is unlikely to reduce total debt-to-EBITDA ratio below 9.8 times (x) or increase EBITDA interest coverage above 2.70x.

Affected issues are AX.PR.A, AX.PR.E and AX.PR.I.

Standard & Poor’s has announced:

• On Dec. 16, 2020, S&P Global Ratings lowered its long-term issuer credit rating (ICR) on Innergex Renewable Energy Inc. to ‘BB+’ from ‘BBB-‘.
• We also lowered our global scale rating and Canada scale rating on Innergex’s preferred shares by two notches to ‘B+’ and ‘P-4(High)’, respectively, from ‘BB’ and ‘P-3’.
• The downgrade reflects credit metrics that continue to show weakness in light of the company’s aggressive expansion, moderate distribution growth, negative free cash flow, and reliance on corporate debt to fund acquisitions and development.
• The stable outlook reflects our expectation that the company’s cash flow quality will continue to benefit from its portfolio of contracted assets, which will generate sufficient cash flows to support debt obligations at the holdco level. Under our base-case scenario, we forecast that funds from operations (FFO)-to-debt will be around 19% through 2022.

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Although Innergex has added considerable generation capacity to its portfolio, its capital and investment spending has exceeded cash flow growth. The downgrade essentially reflects credit metrics that continue to reflect weakness in light of the company’s aggressive expansion, moderate distribution growth, negative free cash flow, and heavy reliance on corporate debt to fund acquisitions and development projects. Since the beginning of 2017, Innergex has brought into operation more than 1.8 gigawatts of net capacity, either through developments, or via opportunistic acquisitions across different markets. Although this has helped increase scale, as well as improve asset and geographical diversity, the growth in distributable cash at the holdco level has lagged our expectations, and, combined with an increasing dividend and ongoing capital spending requirements, has left the company with limited, or no room for debt reduction.
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We view Innergex’s financial risk profile as aggressive based on projected FFO-to-debt of about 19% and debt-to-EBITDA of 4.0x-4.5x through our two-year outlook period. Our analysis excludes both nonrecourse project debt (and associated debt service) from corporate debt and adjusted interest expense.

The stable outlook reflects our expectation that Innergex’s cash flow quality will continue to benefit from its portfolio of contracted assets, which will generate sufficient cash flows to support debt obligations at the holdco level. We also expect that the company’s future investments and developments will remain backed by commercial certainty via contracts or PPAs. Finally, under our base-case scenario, we forecast that FFO-to-debt will remain around 19% through 2022.

We could lower the rating if we forecast FFO-to-debt will remain below 16% on a consistent basis. This could occur if the company’s reliance on corporate-level debt financing to support growth or expansion plans is higher than expected, or if its financial performance falls short of our base-case forecast.

We could consider a positive rating action if Innergex achieves and maintains FFO-to-debt ratio of at least 23% on a sustained basis. This could be achieved if the company experiences better-than-expected financial performance, or if it reduces debt at the holdco level.

Affected issues are INE.PR.A and INE.PR.C.