DBRS Morningstar Changes Trend to Negative from Stable, Confirms Enwave Energy Corporation at A (low)

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating, Senior Secured Notes (Senior Notes) rating, and Senior Term Facility (the Term Facility) rating of Enwave Energy Corporation (Enwave or the Company) at A (low) and changed all trends to Negative from Stable. The trend changes reflect the Company's cash flow-to-debt ratio being below the mid-12% range that DBRS Morningstar expects in order to maintain the A (low) rating. DBRS Morningstar may revert the trend to Stable if cash flow-to-debt improves to well within DBRS Morningstar’s “A” range on a sustained basis. Conversely, the ratings may be downgraded if cash flow-to-debt does not improve as DBRS Morningstar expects.

DBRS Morningstar expects that Enwave will continue to grow by contracting and connecting new customers, with growth primarily focused on its downtown Toronto energy system. DBRS Morningstar expects that cash flow-to-debt will improve in 2023 as new customers are connected to the system and begin to contribute EBITDA but remain below the mid-12% range. Additionally, DBRS Morningstar expects that Enwave will complete capital expenditure (capex) projects to continue to de-carbonize its operations, reduce operating costs, and provide additional capacity for growth. DBRS Morningstar expects the large capex projects to be completed under design-build fixed-price contracts with reputable construction contractors. DBRS Morningstar also expects the capex to be largely funded by subordinated loan contributions provided by Enwave's shareholders.

In DBRS Morningstar view, Enwave's downtown Toronto energy operations have a stronger business risk assessment than the Company’s operations outside downtown Toronto. If Enwave increases its share of EBITDA from operations with weaker business risk assessments, DBRS Morningstar could take a negative rating action.

There were no Environmental/Social/Governance factors 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, 2023).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies applicable to the rating are the Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (https://www.dbrsmorningstar.com/research/402616; September 13, 2022) and DBRS Morningstar Global Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (https://www.dbrsmorningstar.com/research/404248; October 20, 2022).

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.

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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