DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the First Mortgage Bonds (the FMBs) rating of Énergir, L.P. (the Partnership) at "A" and the Commercial Paper (CP) rating at R-1 (low). DBRS Morningstar also confirmed the Issuer Rating, FMBs, and Senior Secured Notes (the Notes) ratings of Énergir Inc. at "A." All trends are Stable. Debt at Énergir Inc. (the FMBs and Notes) is guaranteed by Énergir, L.P. and ranks pari passu with the FMBs at the Partnership. Following the establishment of the CP program at Énergir, L.P., DBRS Morningstar has discontinued and withdrawn the CP rating at Énergir Inc.
The ratings of Énergir, L.P. are largely based on the Partnership's regulated natural gas distribution operations in the Province of Québec (Québec; rated AA (low) with a Stable trend by DBRS Morningstar) and the State of Vermont, and regulated electricity generation, transmission, and distribution operations in Vermont. DBRS Morningstar continues to view the regulatory framework in Québec under the Régie de l'énergie (the Régie) to be reasonable for the current ratings. In May 2022, the Régie approved Phase 1 of a dual energy offering between Énergir, L.P and Hydro-Québec (rated AA (low) with a Stable trend by DBRS Morningstar). Under the joint offering, the Partnership will be compensated over a 15-year period by Hydro-Québec for revenue shortfalls from certain new buildings and existing customers who convert to using dual energy (e.g., using natural gas and electricity for space and water heating). DBRS Morningstar notes the joint agreement should provide earnings stability to Énergir, L.P. over the medium term.
Énergir, L.P.'s key credit metrics have remained stable and supportive of the "A" rating category. DBRS Morningstar notes, under the Partnership's trust deed, nonregulated energy activities and nonregulated activities cannot, respectively, exceed 10% and 5% of total assets (2.42% and none as at September 30, 2022), which has led to very stable earnings and cash flows. As such, barring an acquisition, DBRS Morningstar expects Énergir, L.P.'s business and financial risk assessments to remain steady. A positive rating action is unlikely given the regulatory environments and the current key credit metrics. DBRS Morningstar could consider a negative rating action if the metrics weakened to a level no longer commensurate with the "A" rating category.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).
All figures are in Canadian dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616).
The following methodologies have also been applied:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694/), and
-- DBRS Morningstar Global Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023; https://www.dbrsmorningstar.com/research/410196/).
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.
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The rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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