ALA Under Review-Developing by DBRS

DBRS has announced that it:

has today placed the BBB Issuer Rating and the Medium-Term Notes (MTNs) rating and the Pfd-3 Preferred Shares – Cumulative rating of AltaGas Ltd. (AltaGas or the Company) Under Review with Developing Implications. These rating actions follow the announcement that the Company has agreed to acquire WGL Holdings Inc. (WGL) for a total consideration of CAD 8.4 billion, including assumption of CAD 2.4 billion of debt (the Acquisition). The Acquisition is subject to WGL shareholders and certain regulatory and government approvals. The Acquisition is expected to close by the end of the second quarter of 2018.

DBRS notes that there is execution risk associated with the Acquisition. In addition to a shifting political climate in the United States, there is execution risk associated with regulatory, government hurdles and the financing plan. The expectation of the Acquisition closing in approximately 18 months considers the regulatory and political risks. Regulatory approvals are required from three separate public utility commissions in Virginia, Maryland and District of Columbia, the Federal Energy Regulatory Commission (FERC), the Committee on Foreign Investment in the United States (CFIUS), and expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of customary closing conditions. There is also execution risk with respect to generating expected proceeds from the proposed sale of AltaGas assets to finance the acquisition.

WGL has a reasonably healthy financial profile supported largely by its diverse and growing regulated utility operations. On a pro forma basis, DBRS expects initial pressure on AltaGas consolidated credit metrics at the close of the Acquisition in 2018 as a result of higher debt levels, including debt at WGL. Ratings could be pressured should the timing and amount of asset sales envisaged in the preliminary financing plan not materialize, as this could result in higher leverage. There is also currency risk associated with the USD 4.95 billion bridge credit facility. As the financing plan at closing of the Acquisition could change based on the timing, amounts and execution of the planned asset sales, the impact on the Company’s financial risk assessment (FRA) is uncertain at this time.

DBRS has placed the ratings of AltaGas Under Review with Developing Implications, considering the execution risks and uncertainties surrounding the financing plan. As noted in the latest DBRS rating report dated November 14, 2016, DBRS expects AltaGas to fund its growth projects and acquisitions with a prudent mix of debt and equity in order to maintain the company’s debt-to-capital ratio in the low 50% range. DBRS will further review the Company’s ratings as more information becomes available and aims to resolve the Under Review status of the ratings once financing details are known and the Acquisition has closed.

AltaGas has several issues of preferred shares outstanding, the most recently issued being ALA.PR.I, which commenced trading in November, 2015. Affected issues are ALA.PR.A, ALA.PR.B, ALA.PR.E, ALA.PR.G and ALA.PR.I.

Implied Volatility analysis yields the following chart:

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