{"id":42425,"date":"2021-08-08T19:30:39","date_gmt":"2021-08-09T00:30:39","guid":{"rendered":"http:\/\/prefblog.com\/?p=42425"},"modified":"2021-08-08T19:30:39","modified_gmt":"2021-08-09T00:30:39","slug":"fts-upgraded-to-pfd-2low-by-dbrs","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=42425","title":{"rendered":"FTS Upgraded to Pfd-2(low) by DBRS"},"content":{"rendered":"

DBRS has announced<\/a> (on 2021-5-4):<\/p>\n

DBRS Limited (DBRS Morningstar) upgraded Fortis Inc.\u2019s (Fortis) Issuer Rating and Unsecured Debentures rating to A (low) from BBB (high) and Fortis\u2019 Preferred Shares rating to Pfd-2 (low) from Pfd-3 (high). DBRS Morningstar also changed all trends to Stable from Positive. On May 4, 2020, DBRS Morningstar changed the trends on Fortis\u2019 ratings to Positive following a significant reduction in nonconsolidated debt and an improvement in liquidity as a result of the sale of a 51% interest in the Waneta Hydroelectric Expansion (the Waneta Expansion) and a $1.2 billion common equity issuance in December 2019. After the sale of the Waneta Expansion, approximately 99% of Fortis\u2019 consolidated EBITDA has been from regulated utilities, with the remaining 1% from long-term contracted generation assets in Belize and British Columbia.<\/p>\n

The rating upgrades reflect (1) Fortis\u2019 strong nonconsolidated and modified-consolidated credit metrics, solid liquidity, and stable business risk profile in 2020; and (2) DBRS Morningstar\u2019s expectation that Fortis will continue to maintain its strong credit profile in 2021 and over the medium term. Fortis has demonstrated financial resiliency to cope with the ongoing Coronavirus Disease (COVID-19) pandemic. The current ratings take into account Fortis\u2019 structural subordination and mitigation factors such as the diversification of regulatory jurisdictions and the size, stability, and sustainability of cash flow, as well as potential risks associated with regulatory lags, operational disruptions, and capital project executions at its regulated utilities.<\/p>\n

DBRS Morningstar recognizes that the coronavirus pandemic did not have a material impact on Fortis\u2019 2020 financial performance, operations, and major capital projects. Most of Fortis\u2019 assets are essential services and are important to maintain continual economic activities and social and health safety. The pandemic has not significantly affected Fortis\u2019 volume distributions to date. Approximately 83% of revenues are protected by either regulatory mechanisms such as deferral accounts and decoupling or under residential sales, which increased during the pandemic. Capital spending of $4.2 billion in 2020 was consistent with Fortis\u2019 plan for the year and was reasonably financed at its regulated utilities.<\/p>\n

From a regulatory perspective, there have not been material changes since DBRS Morningstar\u2019s last rating review in May 2020. Regulated utilities in British Columbia are in their second year of the Multiple-Year Rate Plan (2020\u201324), which is similar to the 2013\u201319 Performance Base Regulation. Alberta\u2019s regulated operations benefitted from a regulatory decision in which Alberta Utilities Commission (AUC) reversed its previous decision with respect to the 2018 Independent System Operator Tariff Application. The AUC decision resulted in the utility retaining approximately $400 million of unamortized customer contributions in the rate base. Regulated operations in Newfoundland, New York, and Arizona are under cost of service and have not experienced any material changes in their respective regulatory frameworks. ITC Holdings (ITC), a transmission company that Fortis acquired in 2016, continues to benefit from timely cost recovery, good return on its investments, and stable cash flow with a return on equity (ROE) increasing to 10.77% (including incentive adders) in 2020 compared with the previous all-in ROE of 10.63%.<\/p>\n

With respect to Fortis\u2019 financial risk profile, there has been significant improvement in Fortis\u2019 nonconsolidated metrics over the previous years while its modified-consolidated metrics have remained strong and stable. Fortis\u2019 stable modified-consolidated metrics reflect the fact that all Fortis\u2019 regulated utilities tend to maintain their capital structure in line with the regulatory capital structure or deemed equity and that the financing of their capital expenditures (capex) has been reasonable to maintain their credit metrics. The improvement of nonconsolidated metrics reflects a significant reduction in corporate debt. Following the sale of Fortis’ 51% interest in the Waneta Expansion for approximately $1.0 billion and the issuance of approximately $1.2 billion in common equity, Fortis\u2019 corporate debt decreased to approximately $3.6 billion at the end of 2020 from $5.4 billion in 2018 (approximately $6.0 billion following the ITC acquisition in 2016). In the meantime, cash flows to Fortis from its subsidiaries have significantly increased as the consolidated rate base grows. As a result, Fortis\u2019 nonconsolidated metrics (as calculated by DBRS Morningstar) strengthened in 2019 and further improved in 2020 as follows: nonconsolidated debt-to-capital decreased to around 18% in 2020 from 26.5% in 2018 (31.7% in 2016), and cash flow-to-nonconsolidated debt increased to over 19% from 10.9% in 2018 (7.0% in 2016). DBRS Morningstar expects Fortis\u2019 leverage level to remain stable over the medium term as there are currently no material financing requirements at the corporate level. Fortis expects to benefit from incremental cash flow at its subsidiaries as a result of a substantial capex program over the next five years.<\/p>\n

Fortis expects its growth over the next few years to be mostly organic. Capex for the 2021\u201325 period increased modestly to $19.6 billion from $18.8 billion for the 2020\u201324 period. Most capex will be spent on regulated assets. As a result, Fortis\u2019 regulated rate base, approximately $30.5 billion at mid-year 2020, is expected to grow to approximately $40.3 billion in 2025. This will further strengthen Fortis\u2019 business risk profile as its operations will get larger and more diversified. Fortis plans to fund most of its capex program at its regulated utility level. The required funds will mainly be financed with subsidiaries\u2019 internally generated cash flow (net of dividends to Fortis), debt issued at the subsidiaries, and a corporate dividend reinvestment program (which is common equity). DBRS Morningstar considers the financing plan to be reasonable and believes that it should not have a material impact on Fortis\u2019 credit metrics (both nonconsolidated and modified-consolidated) in the near to medium term.<\/p>\n

Given the rating upgrades, DBRS Morningstar believes that another positive rating action will not be likely in the medium term. DBRS Morningstar, however, would take a negative rating action if (1) Fortis\u2019 business risk profile deteriorates significantly as a result of a weakening of the credit quality of its major subsidiaries or as a result of material acquisitions, which is unlikely based on Fortis\u2019s current expansion plan; (2) its modified-consolidated metrics fall below the \u201cA\u201d rating range for a sustained period; or (3) Fortis\u2019 nonconsolidated metrics materially weaken from the current level, especially if its nonconsolidated debt-to-capital increases substantially to around the 30% range on a long-term basis.<\/p><\/blockquote>\n

Affected issues are: FTS.PR.F, FTS.PR.G, FTS.PR.H, FTS.PR.I, FTS.PR.J, FTS.PR.K and FTS.PR.M.<\/p>\n","protected":false},"excerpt":{"rendered":"

DBRS has announced (on 2021-5-4): DBRS Limited (DBRS Morningstar) upgraded Fortis Inc.\u2019s (Fortis) Issuer Rating and Unsecured Debentures rating to A (low) from BBB (high) and Fortis\u2019 Preferred Shares rating to Pfd-2 (low) from Pfd-3 …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-42425","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/42425","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=42425"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/42425\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=42425"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=42425"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=42425"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}