DBRS Morningstar Discontinues Rating on Waterloo North Hydro Inc., Assigns New Rating of “A” With a Stable Trend to Enova Power Corp.

DBRS Limited (DBRS Morningstar) discontinued the Issuer Rating of Waterloo North Hydro Inc. (WNH) as a result of its September 1, 2022, merger with Kitchener-Wilmot Hydro Inc. (KWH), which resulted in the formation of Enova Power Corp. (Enova or the Company). DBRS Morningstar concurrently assigned an Issuer Rating of “A” with a Stable trend to Enova.

Enova’s business risk assessment is supported by the reasonable regulatory framework in Ontario. DBRS Morningstar notes both WNH and KWH were regulated by the Ontario Energy Board under the same framework, with almost all earnings generated by their regulated electricity distribution businesses. The Company is also expected to benefit from operating efficiencies and cost savings, especially given that WNH’s franchise area was contiguous with KWH’s. Under the current regulatory regime, shareholders of Enova will retain the benefit of operating synergies for up to 10 years following the merger.

Enova’s financial risk assessment is also expected to support the “A” rating. DBRS Morningstar notes WNH’s and KWH’s standalone key credit metrics were, or would have been, consistently strong for the rating category. As this transaction is a merger and no additional debt was issued, DBRS Morningstar expects Enova’s key credit metrics to also be strong for the current rating.

ESG CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
The principal methodology is Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 24, 2021; https://www.dbrsmorningstar.com/research/384922), 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 (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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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