Enmax credit rating downgraded by 2nd agency after U.S. utility purchase

Enmax's credit rating has been downgraded for a second time due to its decision to take on debt in acquiring a Maine-based utility company.

The City of Calgary-owned utility closed its purchase of Emera Maine for $959 million US on Tuesday. Along with assumed debt, its aggregate value is $1.3 billion US. It was the company's first acquisition outside of Canada.

Credit rating agency DBRS had placed Enmax's rating under review with negative implications last year after the purchase was initially announced, and in October, Standard and Poor's (S&P) Global Ratings dropped Enmax's rating by one level, from triple B+ to triple B.

DBRS followed suit on Wednesday, dropping the rating one level from A to triple B. 

"The downgrades reflect DBRS Morningstar's view that the significant increase in leverage as a result of the mostly debt-financed acquisition more than offsets the modest improvement in Enmax's business risk profile resulting from the acquisition of relatively low-risk, regulated operations," the agency said in a release on Wednesday.

DBRS said that as of Dec. 31, 2019, Enmax had $2.9 billion Cdn in total debt and an operating cash flow of $400 million for the year. 

It said that with an estimated $250 million in debt financing required to close the Emera deal, the assumption of $500 million in Emera's debt and the addition of $100 million in Emera's cash flow, Enmax's cash-flow-to-debt ratio would be weakened.

Last week, Enmax had reported its financial results for last year — declaring it would add another $6 million in special dividends in addition to the $48 million it would be paying to the City of Calgary. The move was due to "the unprecedented times in Alberta and globally with the COVID-19 pandemic," the company said.

Enmax serves more than 670,000 customers across Alberta. Emera Maine serves more than 159,000 customers in the state of Maine.