Morningstar DBRS Confirms Liberty Utilities Finance GP1’s Issuer Rating and Senior Unsecured Notes at BBB (high), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Liberty Utilities Finance GP1's (LUF or the Issuer) Issuer Rating and Senior Unsecured Notes (the Senior Notes) rating at BBB (high) with Stable trends. Liberty Utilities Co. (LUCO) unconditionally guarantees LUF’s Senior Notes (the Guarantee). The Issuer and LUCO are wholly owned by Algonquin Power & Utilities Corp. (APUC; rated BBB with a Stable trend by Morningstar DBRS). LUF’s credit ratings are based on the Guarantee and LUCO’s business and financial risk profile, as assessed below.

KEY CREDIT RATING CONSIDERATIONS
The Issuer Rating is based on (1) LUCO’s diversified regulated utilities in 13 U.S. states, which provides a predictable source of earnings and cash flows; and (2) LUCO’s strong credit metrics. The Stable trends reflect Morningstar DBRS’ expectation that LUCO’s business risk and credit metrics will remain stable in the medium term.

CREDIT RATING DRIVERS
LUCO’s credit metrics in the last nine months of 2023 continue to support the Issuer’s credit ratings. Morningstar DBRS could take a positive credit rating action if LUCO’s financial metrics remain strong on a sustained basis while maintaining its existing business risk profile. Although unlikely, Morningstar DBRS may take a negative credit rating action if LUCO's credit metrics weaken materially and sustainably to below the BBB (high) level.

EARNINGS OUTLOOK
Assuming normal weather conditions, Morningstar DBRS expects an increase in LUCO’s 2024 EBITDA from existing facilities as a result of the implementation of new rates in the same regulatory jurisdictions in all three business lines: Electricity, Natural Gas, and Water.

FINANCIAL OUTLOOK
Morningstar DBRS expects LUCO’s key credit metrics to remain strong in 2024 because of the expected stable earnings and cash flows from its regulated utilities.

CREDIT RATING RATIONALE
LUCO’s business risk profile remained stable in 2023. There were no material changes in regulatory frameworks and no major adverse regulatory decisions in most jurisdictions that negatively affected LUCO’s credit profile.

In April 2023, APUC and American Electric Power mutually agreed to terminate the proposed acquisition of Kentucky Power Company and AEP Kentucky Transmission Company, Inc. Morningstar DBRS is of the view that the termination will not affect LUCO’s current business risk profile or credit metrics. For more details, please see the press release published on April 17, 2023, at https://dbrs.morningstar.com/research/412773.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of LUCO, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of LUCO, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of LUCO, the BRA carries greater weight than the FRA.

Notes:
All figures are in U.S. dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (https://dbrs.morningstar.com/research/421106), September 27, 2023, and DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (https://dbrs.morningstar.com/research/411694), March 28, 2023.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/397223.

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-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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