DBRS Morningstar Confirms AltaLink Investments, L.P. at BBB (high) With a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Senior Unsecured Bonds rating of AltaLink Investments, L.P. (AILP) at BBB (high). Both trends are Stable. The rating confirmation is supported by the strong credit quality of AILP's wholly owned subsidiary, AltaLink, L.P. (ALP or OpCo; rated "A"/R-1 (low) with Stable trends by DBRS Morningstar). Over the past few years, AILP has used the strength of increasing dividend cash flow from ALP to significantly decrease its nonconsolidated leverage, which currently stands at approximately 9.5%, a slight reduction from 10.9% as at Q1 2020 and 18.6% as at the same period in 2019. The decreasing leverage, along with ALP's self-sufficient cash generation ability following an extended capital investment program, formed the basis of DBRS Morningstar's positive rating actions in July 2019, while the expectation that AILP would gradually ramp down its deleveraging program and use cash for targeted investment programs formed the basis of the trend change to Stable in 2020. In the absence of identified opportunities, however, DBRS Morningstar expects AILP to retire long-term debt as it matures.

ALP's strengthened cash dividends to AILP flow from the Alberta Electric System Operator (AESO)-directed investments from 2011 to 2015, which resulted in a greatly expanded rate base and a favourable increase in allowed return on equity (ROE) from the Alberta Utilities Commission (AUC) beginning in 2017, which has been extended on a rolling basis during the pandemic. ALP significantly increased the flow of its excess cash to AILP starting in 2018. Over the course of 2019 and 2020, AILP used distributions to pay down $400 million of maturing long-term debt and fund dividend distributions to its parent.

ALP is not expected to require support from AILP in the near future given the low scale of capex and the projected low growth in electricity demand in Alberta over the next 20 years as forecasted by the AESO in its 2021 Long-term Outlook (LTO). DBRS Morningstar notes that ALP's capex projects over the next five years have been largely identified and budgeted while the 2021 tariff refund is expected to be funded through a temporary reduction in dividends streamed to AILP as well as debt issued at the ALP level to maintain the regulatory capital structure.

The confirmation of the rating reflects DBRS Morningstar's belief that cash flow at AILP will be used to support targeted releveraging and investment programs by its sister company, BHE Canada. DBRS Morningstar may take a positive rating action if the releveraging fails to materialize, leading to sustained metrics above the rating range; conversely, a negative rating action may be taken if the leverage level ends up exceeding DBRS Morningstar's expectations.

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:
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 (October 27, 2020; https://www.dbrsmorningstar.com/research/368939) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020; https://www.dbrsmorningstar.com/research/369167), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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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