Innergex Renewable Energy Inc. #BBB-# Rating Affirmed, Off Watch Positive After Alterra Power Corp. Acquisition Closes

Stocks and Financial Services Press Releases Thursday February 22, 2018 09:59
TORONTO--22 Feb--S&P Global Ratings

TORONTO (S&P Global Ratings) Feb. 21, 2018--S&P Global Ratings today affirmed its 'BBB-' long-term corporate credit rating on Longueuil, Que.-based Innergex Renewable Energy Inc. At the same time, S&P Global Ratings affirmed its 'BB' global scale rating and 'P-3' Canada scale rating on the company's preferred shares. S&P Global Ratings removed the ratings from CreditWatch with positive implications, where they were placed Nov. 2, 2017. The outlook is stable.

The affirmation follows Innergex closing its acquisition of Alterra Power Corp. We believe the acquisition increases Innergex's scale and improves diversity by geography and fuel type. The acquisition adds eight operating power assets totaling 825 megawatts (MW; net ownership of 364 MW) of hydro, wind, geothermal, and solar generation capacity in Canada, the U.S., and Iceland. The company is constructing the 200 MW Flat Top wind project (of which it owns 51%) in central Texas, and expects it to begin operation by mid-2018. Upon Flat Top's completion, Alterra will operate nine power plants totaling 1,025 MW, owning a 465 MW share of this. Alterra also came with a portfolio of development projects (three prospective projects at an advanced stage [net 686 MW]), and other U.S. production tax credits (PTC-qualified prospective projects [net 490 MW]), and a pipeline of prospective projects in preliminary stages or in progress (net 4,350 MW). It will also have a team of developers, builders, and operators to support these projects. Post-transaction, Innergex will own 65 facilities (operational and under-construction) with combined net capacity of about 1,606 MW (gross installed 2.9 gigawatts) in Canada (British Columbia, Ontario, and Quebec), France, the U.S., and Iceland.

The stable outlook reflects S&P Global Ratings' expectation that Innergex's portfolio of power generation facilities will continue to operate under long-term contracts with investment-grade counterparties and generate fairly predictable cash flows to support its holding-company debt obligations. Under our base-case scenario, we expect the projects under construction to enter service on time, budget, and the weighted-average funds from operations (FFO)-to-debt metric to be on the higher end of the significant financial risk profile category (25%-30%), and debt-to-EBITDA of 3.0x-3.5x during our two-year outlook period.

A downgrade could happen if FFO-to-debt ratio consistently falls below 23% over our outlook period. This could result from increased costs at projects under construction resulting in increased capital contributions from Innergex funded through debt, or from a significant reduction in cash flows from its projects due to operational challenges.

An upgrade could happen if Innergex continues to meet projections while FFO-to-debt moves materially higher than 35%. This could result from increased cash flows from new projects or new acquisitions or deleveraging with paying down of debt or lower balances outstanding on the credit facility.


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