DBRS Limited (DBRS) maintained the Under Review with Negative Implications (UR-Negative) status of ENMAX Corporation’s (ENMAX or the Company) Issuer Rating of A (low), Unsecured Debentures rating of A (low) and Commercial Paper rating of R-1 (low).
The ratings were placed UR-Negative on March 25, 2019, following ENMAX’s agreement to acquire Emera Maine, the regulated electric transmission and distribution company currently owned by Emera Incorporated, for a purchase price of USD 959 million ($1,286 million; the Acquisition). Including assumed debt, aggregate enterprise value is forecast to be approximately USD 1.3 billion ($1.8 billion) on closing. The Company is initially funding the Acquisition with debt and intends to use excess cash on hand and proceeds from non-core asset sales to reduce the total debt financing at close. Subject to certain conditions and regulatory approvals, the Acquisition is expected to close late in 2019.
DBRS notes that, based on a preliminary evaluation of the regulatory regime for Emera Maine, from a business risk perspective, DBRS considers the Acquisition to be generally in line with the current ratings.
However, DBRS estimates that, on a pro forma basis, the Acquisition would weaken ENMAX’s DBRS-adjusted cash flow-to-debt metric to about 14% from 22% as at March 31, 2019, a significant increase in leverage for the Company that may no longer be in line with the current ratings.
In the coming months, DBRS expects to review management’s detailed financing, deleveraging and strategic plans with respect to the Acquisition in order to provide further clarity on the path of ENMAX’s ratings. DBRS plans to resolve the UR-Negative rating action upon closing of the Acquisition.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Regulated Electric, Natural Gas and Water Utilities Industry; Rating Companies in the Independent Power Producer Industry; DBRS Criteria: Guarantees and Other Forms of Support; and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, which can be found on dbrs.com under Methodologies.
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