EMA: Review-Developing By DBRS

DBRS has announced that it:

has today placed Emera Inc.’s (Emera or the Company) Issuer Rating and related ratings Under Review with Developing Implications. This rating action follows the announcement of the Company’s acquisition of the Bridgeport Energy, Tiverton and Rumford gas-fired generation facilities (the Portfolio) from Capital Power L.P. (rated BBB; the Acquisition). The Acquisition, total value of approximately USD $541 million, is expected to close in the fourth quarter of 2013, subject to various approvals.

The Portfolio is located in Connecticut, Rhode Island and Maine (the U.S. Northeast region) and has approximately 1,050 MW of total non-contracted generation capacity. All output from the facilities is sold into the New England power market. This Acquisition would increase Emera’s installed capacity in New England, as well as the Company’s total generation assets.

Business Risk Profile – Modestly Negative Based on its preliminary review, DBRS views the proposed acquisition as modestly negative with respect to Emera’s existing business risk profile. Upon completion of the Acquisition, this non-contracted portfolio would account for approximately 25% of Emera’s total generation capacity, exposing the Company to the currently low wholesale pricing environment.

Financial Risk Profile – Neutral to Negative DBRS expects the Company to fund the Acquisition in a prudent manner, such that there would be minimal impact on its deconsolidated leverage. The Company had a deconsolidated debt-to-capital ratio of 34.2% as of December 31, 2012. As noted in DBRS’s press release dated December 14, 2012 (“DBRS Changes Trend on Emera Inc. to Stable from Negative”), the Stable trend reflects DBRS’s expectation that Emera will continue to reduce its non-consolidated debt-to-capital ratio, in the medium term, to below 30%, to be in line with its current rating category. Should Emera’s financing strategy deviate from the aforementioned leverage improvement, there could be negative rating implications.

Emera’s press release states:

Emera plans to finance the purchase with cash and short term credit resources on closing; and ultimately expects to finance the acquisition with a combination of debt and equity consistent with maintaining its strong financial position and existing credit ratings. The transaction is subject to certain regulatory approvals and is expected to close by the end of 2013.

“Emera is making this investment for the long term,” said Mr. Huskilson. “The earnings profile is modest in the early years, but we have acquired these facilities at a fair price and we expect their value will increase over time, as we optimize within our portfolio, as older, less efficient assets in the region are retired, and more intermittent renewable generation is added to the system.”

EMA has three preferred share issues outstanding: EMA.PR.A and EMA.PR.C (both FixedReset) and EMA.PR.E (PerpetualDiscount). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

Leave a Reply

You must be logged in to post a comment.