DBRS Morningstar Confirms Rating on Elexicon Corporation at “A” With a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Elexicon Corporation (Elexicon or the Company) at “A” with a Stable trend. Elexicon was formed on April 1, 2019, through the amalgamation of Veridian Corporation and Whitby Hydro Energy Corporation. Elexicon’s rating continues to be supported by its stable regulated operations and reasonable financial profile.

DBRS Morningstar expects Elexicon to have approximately $60 million of capital expenditures (capex) per year over the next five years. A significant portion of this capex will likely support residential customer growth in Elexicon’s franchise area. DBRS Morningstar expects this capex to be funded with debt and equity that will bring Elexicon’s leverage near the Ontario Energy Board’s (OEB) deemed 60:40 debt-to-equity level. DBRS Morningstar also believes Elexicon’s operating efficiency will underperform its OEB-approved regulated return on equity until the next rate rebasing in 2029 because of higher inflation and increased operating costs from new corporate initiatives.

DBRS Morningstar does not expect to take a positive rating action on Elexicon in the near term. However, a negative rating action could occur if the Company’s cash flow to debt decreases below the 10% level. DBRS Morningstar notes that approximately 28% of Elexicon's total debt outstanding is owed to its shareholders, which provides the Company with some financial flexibility.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 (May 17, 2022).

Notes:
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 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.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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