DBRS Morningstar Confirms Liberty Utilities (Canada) LP at BBB, Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of Liberty Utilities (Canada) LP (LUCA or the Company) and its Senior Unsecured Notes rating at BBB. Both trends are Stable. LUCA owns 100% of Liberty Utilities Gas New Brunswick LP (LUNB), a regulated gas distribution company in New Brunswick. The Company also holds a 9.8% indirect interest in Wataynikaneyap Power LP Project (WPP). This investment is accounted for under the equity method of accounting. The rating approach for LUCA is basically based on the credit strength of LUNB.

The ratings of LUCA reflect the following factors: (1) Substantially all cash flow is generated from the regulated natural gas distribution business. LUNB has operated under an improved regulatory framework by the Province of New Brunswick (rated A (high) with a Stable trend by DBRS Morningstar) since 2016. The natural gas distribution business benefits from a cost-of-service mechanism with no natural gas price risk. (2) A new decision from the New Brunswick Energy and Utilities Board increased LUNB’s return on equity (ROE) to 9.8% from 8.5% following the Company’s successful appeal of the October 2021 decision. (3) LUCA’s credit metrics were strong for the BBB rating range for the 12 months ended September 30, 2022. DBRS Morningstar expects the metrics to remain strong in the medium term, reflecting a higher ROE, a modest increase in the rate base, and a reasonable debt leverage in the planned financing of 2023 capital expenditures. (4) There have been no major operational or natural gas supply disruptions since the last rating review. In addition, natural gas supply is expected to remain stable in the medium term, reflecting long-term contracts for transport from diversified sources.

The rating confirmations reflect the following expectations of DBRS Morningstar:
-- No material changes to the regulatory mechanism will come into force over the medium term that could have a negative impact on LUCA’s credit profile.
-- LUCA’s financial metrics in the medium term will be consistent with the levels required by DBRS Morningstar to support the current ratings.
-- Investment in WPP will continue to be funded by Algonquin Power & Utilities Corp. (rated BBB with a Stable trend by DBRS Morningstar) either in the form of equity injection or through reduced dividends or both.

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/ (May 17, 2022).

Notes:
The principal methodology applicable to the ratings is Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (September 13, 2022; https://www.dbrsmorningstar.com/research/402616).

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate- finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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.

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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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