DBRS Limited (DBRS Morningstar) confirmed ENMAX Corporation's (ENMAX or the Company) Issuer Rating and Unsecured Debentures rating at BBB (high) as well as its Commercial Paper rating at R-2 (high), all with Stable trends. The ratings are based on the Company's stable regulated businesses, offset by its higher-risk nonregulated generation business.
In March 2020, ENMAX acquired a regulated electricity transmission and distribution company (Versant Power; formerly Emera Maine) for a purchase price of USD 959 million (the Acquisition). DBRS Morningstar consequently downgraded the Company's ratings to BBB (high) and R-2 (low) from A (low) and R-1 (low), respectively, as the Acquisition was mostly debt financed and led to a significant increase in leverage. While ENMAX's business risk assessment improved modestly with EBITDA related to stable regulated and non-commodity sources increasing to 70% from 55%, significantly weaker key credit metrics more than offset this improvement with the cash flow-to-debt ratio falling to 11.8% and the debt-to-capital ratio increasing to 59.6% for the last 12 months ended March 31, 2020. The Company intends to deleverage modestly over the next two to three years to improve its key credit metrics.
DBRS Morningstar does not expect the ongoing Coronavirus Disease (COVID-19) pandemic to materially affect ENMAX's financial results for 2020. While results for Versant Power and the Company's electricity distribution operations in the City of Calgary (the City; rated AA (high) with a Stable trend by DBRS Morningstar) will likely decrease modestly because of reduced load and consumption, transmission operations around the City are mostly insulated as revenues are fully fixed. Additionally, ENMAX's highly hedged position for the year should partially mitigate earnings pressure on the Competitive Energy segment caused by weaker spark spreads.
DBRS Morningstar notes that a positive rating action is unlikely in the near term, given the Company's key credit metrics and uncertainty surrounding the coronavirus. A negative rating action could occur if metrics, considering the mix of regulated and nonregulated operations, weaken significantly to a level that is no longer commensurate with the current ratings.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
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 (September 16, 2019); Rating Companies in the Independent Power Producer Industry (May 19, 2020); DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 22, 2020); DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019); and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 10, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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