FortisAlberta has issued new 30-year notes at 5.37%:
DBRS has today assigned a rating of A (low), with a Stable trend, to the $125 million 5.37% medium-term notes (MTNs) due October 30, 2039, issued by FortisAlberta Inc. (FortisAlberta). The MTNs are expected to settle on October 30, 2009. The MTNs are being issued pursuant to FortisAlberta’s Short Form Base Shelf Prospectus dated December 15, 2008.
The MTNs will rank equally with all of FortisAlberta’s other present and future unsecured and unsubordinated senior obligations.
Thirty-year medium-term notes, eh? There’s a stretch!
FortisAlberta is a wholly-owned subsidary of Fortis Inc.:
As owner and operator of more than 60 per cent of Alberta’s total electricity distribution network, FortisAlberta’s focus remains the safe and reliable delivery of electricity to 460,700 customers in 175 communities across southern and central Alberta.
…
The Corporation is a regulated electricity distribution utility in the Province of Alberta. Its business is the ownership and operation of regulated electricity distribution facilities that distribute electricity generated by other market participants from high-voltage transmission substations to end-use customers. The Corporation does not own or operate generation or transmission assets and is not involved in the direct sale of electricity. The Corporation has limited exposure to exchange rate fluctuations on foreign currency transactions. It is intended that the Corporation remain a regulated electric utility for the foreseeable future, focusing on the delivery of safe, reliable and cost-effective electricity services to its customers in Alberta.
While FortisAlberta is the largest of Fortis Inc.’s electric companies, in terms of both assets and profits, it’s a relatively small component of the entire group, contributing about 15% of total profit in 2008. Additionally, there is a big difference between a small regional fully-regulated subsidiary and a multinational company with ambitions:
Fortis is the largest investor-owned distribution utility in Canada serving more than 2,000,000 gas and electricity customers. Its regulated holdings include electric utilities in five Canadian provinces and three Caribbean countries and a natural gas utility in British Columbia. Fortis owns non-regulated generation assets, primarily hydroelectric, across Canada and in Belize and Upper New York State and hotels and commercial real estate in Canada. In 2008, the Corporation’s electricity distribution systems met a combined peak electricity demand of more than 5,700 megawatts (“MW”) and its gas distribution systems met a peak day demand of 1,402 terajoules (“TJ”). The vision of Fortis is to be the world leader in those segments of the regulated utility industry in which it operates and the leading service provider within its service areas. Fortis has adopted a strategy of profitable growth with earnings per common share as the primary measure of performance. The Corporation’s first priority is to pursue organic growth opportunities in existing operations. Additionally, Fortis pursues profitable growth through acquisitions.
Despite the caveat, it’s of interest to compare the 5.37% on the subsidiary’s 30-year note with the YTW on the parent’s PerpetualDiscount issue, FTS.PR.F.
FTS.PR.F closed today at 21.85-95, with a yield-to-worst of 5.70%. At this point, a table is in order:
Fortis Inc
and
FortisAlberta |
| Attribute |
Fortis Inc. |
FortisAlberta |
Credit Rating
Senior Bond
DBRS |
BBB(high) |
A(low) |
Credit Rating
Senior Bond
S&P |
A- |
A- |
Credit Rating
Preferred
DBRS |
Pfd-3(high) |
NR |
Credit Rating
Preferred
S&P |
P-2 |
NR |
Yield
Long Bond |
N/A |
5.37% |
Yield
PerpetualDiscount |
5.70% (div)
7.98% (int. eq.) |
N/A |
I like DBRS’ ratings better than S&P’s – it seems to me that some notching is appropriate in this case. While the parent is wonderfully diversified relative to the subsidiary, which would normally imply equal ratings, in this case the sub is a regulated utility, while the parent is an expanding collection of businesses, some of which are unregulated. While I will agree that a compelling case can be made for equal ratings, I like a one notch better.
It is notable that FTS.PR.F is trading below the yield of the better-rated index; this is probably due to the market’s fondness for non-financials, which is proxied by the “cumulative” attribute. For all that, the spread of about 260bp (interest equivalent) is probably a little low, given that the index-to-index spread is about 250bp. To me, the preferred seems a little expensive against the bond here, all in.
This entry was posted on Thursday, October 29th, 2009 at 10:40 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed.
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FortisAlberta 30-Year Note & FTS.PR.F
FortisAlberta has issued new 30-year notes at 5.37%:
Thirty-year medium-term notes, eh? There’s a stretch!
FortisAlberta is a wholly-owned subsidary of Fortis Inc.:
While FortisAlberta is the largest of Fortis Inc.’s electric companies, in terms of both assets and profits, it’s a relatively small component of the entire group, contributing about 15% of total profit in 2008. Additionally, there is a big difference between a small regional fully-regulated subsidiary and a multinational company with ambitions:
Despite the caveat, it’s of interest to compare the 5.37% on the subsidiary’s 30-year note with the YTW on the parent’s PerpetualDiscount issue, FTS.PR.F.
FTS.PR.F closed today at 21.85-95, with a yield-to-worst of 5.70%. At this point, a table is in order:
and
FortisAlberta
Senior Bond
DBRS
Senior Bond
S&P
Preferred
DBRS
Preferred
S&P
Long Bond
PerpetualDiscount
7.98% (int. eq.)
I like DBRS’ ratings better than S&P’s – it seems to me that some notching is appropriate in this case. While the parent is wonderfully diversified relative to the subsidiary, which would normally imply equal ratings, in this case the sub is a regulated utility, while the parent is an expanding collection of businesses, some of which are unregulated. While I will agree that a compelling case can be made for equal ratings, I like a one notch better.
It is notable that FTS.PR.F is trading below the yield of the better-rated index; this is probably due to the market’s fondness for non-financials, which is proxied by the “cumulative” attribute. For all that, the spread of about 260bp (interest equivalent) is probably a little low, given that the index-to-index spread is about 250bp. To me, the preferred seems a little expensive against the bond here, all in.
This entry was posted on Thursday, October 29th, 2009 at 10:40 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.