DBRS Morningstar Confirms 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 an amalgamation of Veridian Corporation and Whitby Hydro Energy Corporation (Whitby Hydro). Elexicon's rating continues to be supported by its stable regulated operations, reasonable financial profile, and supportive shareholders.

DBRS Morningstar expects that the Coronavirus Disease (COVID-19) pandemic will likely negatively affect Elexicon's earnings for 2020 due to lower revenues from commercial and industrial customers. The coronavirus pandemic also exposes Elexicon to increased uncertainty due to the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS Morningstar) mandating that through July 31, 2020, Ontario electricity customers cannot be disconnected for failing to pay their bills, which can lead to an increase in customer defaults and bad debts. DBRS Morningstar expects that any defaults will eventually be recovered through the rates. DBRS Morningstar also notes that Elexicon will continue to remit payments for transmission fees and energy costs to the Independent Electricity System Operator (the IESO; rated A (high) with a Stable trend by DBRS Morningstar), which may place moderate pressure on Elexicon’s liquidity. However, Elexicon has mitigated its liquidity risk by increasing its operating credit facility from $40 million to $100 million until September 30, 2020.

Elexicon's financial risk profile was strong in 2019, with all key credit metrics supportive of the current rating category. DBRS Morningstar expects that Elexicon's financial ratios will deteriorate moderately in the near term as the Company completes the Seaton Municipal Transformer Station project (estimated cost of $40 million). However, financial metrics are expected to remain in the “A” category and supportive of the rating going forward. Additionally, approximately 49% of Elexicon's total debt outstanding was owed to its shareholders which provides the Company with additional flexibility. DBRS Morningstar does not expect that it will take a positive rating action on Elexicon in the near term. However, a negative rating action could occur if the coronavirus pandemic results in higher-than-expected payment defaults, which then significantly strain the Company's liquidity and credit metrics.

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.

Notes:
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) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Their Subsidiaries (November 25, 2019), 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.

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 rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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