DBRS Morningstar Confirms Alberta PowerLine Limited Partnership at A (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the ratings on the Long-Term Senior Bonds and the Medium-Term Senior Bonds (collectively, the Senior Bonds) of Alberta PowerLine Limited Partnership (APL or ProjectCo) at A (low) with a Stable trend. ProjectCo is the special-purpose vehicle (SPV) created to design, build, finance, operate, and maintain the Fort McMurray West 500-kilovolt (kV) Transmission Project (the Project) under a 36.8-year Project Agreement (PA) with the Alberta Electric System Operator (AESO or the Authority).

Following the approval by AUC on November 29, 2019, the sponsors — Canadian Utilities Limited (CU; rated “A” with a Stable trend by DBRS Morningstar) and Quanta Services, Inc. (Quanta) — sold on December 18, 2019, approximately 35.17% of their equity stake in APL to IC GP (2228708 Alberta Ltd.), a corporation representing four indigenous communities, and sold the remaining 64.83% to Genesee Lake Holding Corp. (GLHC), a consortium comprising TD Greystone Asset Management (TD Greystone, 50.90% share), IST3 Investment Foundation (IST3, 41.65% share), and another three indigenous communities (7.45% share). Ultimately, this equity transfer transaction resulted in an ownership between seven indigenous communities collectively holding 40%, TD Greystone holding a 33% share and IST3 holding 27%, which is consistent with DBRS Morningstar’s expectation.

DBRS Morningstar does not expect the equity transfer transaction to have any material negative impact on the performance outlook of ProjectCo, as any changes to the project/governance documents and financing agreements were made to primarily reflect the governance-related changes and new ownership structure. Further, DBRS Morningstar notes that no changes have been made to the financing structure of ProjectCo or to the tariffs as a result of this transaction. Backed by a parent company guarantee from CU, ATCO Electric Ltd. (ATCO Electric) continues as the Operations, Maintenance, and Lifecycle Contractor (O&M Contractor) for APL. Since APL achieved energization on March 29, 2019, operations have progressed smoothly without any unplanned outages or deductions as of August 31, 2020. All construction deficiencies have been rectified and APL received the construction completion certificate from the Authority on April 2, 2020. The Coronavirus Disease (COVID-19) pandemic has not materially and negatively affected APL's ability to carry out its operation and maintenance activities. The Project is considered to be an essential service and therefore not subject to the lock down restrictions.

While not currently anticipated, DBRS Morningstar may take a negative rating action should the Project experience material deterioration in operating performance and worsening trend of unplanned outages, leading to significant deductions and deterioration in credit metrics. Notwithstanding, DBRS Morningstar notes that operating requirements are of low complexity and fairly straightforward for an experienced contractor such as ATCO Electric. DBRS Morningstar views a positive rating action as unlikely in the near term.

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 methodology is Rating Public-Private Partnerships (August 19, 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.

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.

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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