DBRS puts Algonquin Power on developing review

DBRS said it placed all its ratings for Algonquin Power & Utilities Corp. under review with developing implications.

On Tuesday, Algonquin reported an agreement with American Electric Power to acquire Kentucky Power Co. and AEP Kentucky Transmission Co., Inc. for $2.846 billion, including the assumption of about $1.221 billion in debt.

DBRS said it views this acquisition as a positive development from a business risk perspective.

The review with developing implications reflects some uncertainties associated with Algonquin’s financing plan, the agency said. To finance the deal, the company plans to issue up to $750 million common equity through a bought deal with the banks and intends to finance the remainder in the amount of about $875 million with a combination of hybrid debt financing, equity units, and proceeds from the sale of the non-regulated assets/investments.

“DBRS Morningstar has reviewed APUC’s financing plan and is of the view that its current plan (if the hybrid debt is issued out of APUC) could increase APUC’s nonconsolidated leverage. The magnitude of the increase will depend on the amount of the hybrid debt to be issued. DBRS Morningstar notes that if APUC’s nonconsolidated debt to capital (as calculated by DBRS Morningstar) rises significantly above 20% following the issuance of the hybrid debt, then a negative rating action could be taken,” the agency said in a press release.

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