DBRS Morningstar Confirms Algonquin Power Co.’s Issuer Rating and Senior Unsecured Debentures Rating at BBB With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed both the Issuer Rating and the Senior Unsecured Debentures rating of Algonquin Power Co. (operating as Liberty Power Co; APCO or the Issuer) at BBB with Stable trends. The Issuer is wholly owned by Algonquin Power & Utilities Corp. (APUC or the Parent; rated BBB with a Stable trend by DBRS Morningstar). The rating confirmations reflect (1) the modest impact of the Coronavirus Disease (COVID) pandemic on the financial and operational performance and (2) the stable and solid contractual profile associated with its power generation portfolio, which has an approximate weighted-average contract length of 13 years (as of September 30, 2020, approximately 85% of the output being under long-term contracts). The Stable trends incorporate DBRS Morningstar’s expectation that the pandemic will have no material impact on APCO’s day-to-day operations or on the construction risks of the upcoming power projects in next 12 months. Because electricity generation is deemed an essential service, DBRS Morningstar does not expect government-mandated shutdowns to have any material effect on APCO’s operations.

APCO’s key credit metrics as of September 30, 2020, remain supportive of the current ratings and its pro forma YE2020 ratios remain within DBRS Morningstar’s expectations for the current rating category. DBRS Morningstar notes that APCO has a large pipeline of renewable energy projects in Canada and United States that are expected to start commercial operation in 2021. The pandemic has not materially affected the construction of these projects. DBRS Morningstar expects the Issuer to fund these projects with the combination of (1) equity injection from the Parent, (2) contributions from noncontrolling interest partners, and (3) incremental debt. DBRS Morningstar expects the Issuer to maintain a debt-to-capital ratio within the 35% target. DBRS Morningstar also notes that all projects coming online in 2021 are under either long-term power contracts or are financial hedges.

APCO continues to expand its generation portfolio by building new renewable energy projects, mainly solar and wind, which are all expected to either have power contracts or be long-term financial hedges lasting between 10 and 15 years. DBRS Morningstar expects APCO’s credit metrics to improve over the medium term because new projects coming online will contribute incremental cash flow. In addition, DBRS Morningstar believes that the Issuer has the project development expertise to mitigate project cost overruns and delays. DBRS Morningstar does not expect to take any positive rating action in near to medium term. However, should current credit metrics weaken materially because of cost overruns or a material increase in debt leverage, DBRS Morningstar could take a negative rating action.

ESG CONSIDERATIONS
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/373262.

Notes:
The principal methodologies are Rating Companies in the Independent Power Producer Industry (May 19, 2020) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 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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