DBRS expects to downgrade Capital Power to junk

DBRS said it expects to downgrade Capital Power Income LP to speculative grade if it is acquired by Atlantic Power Corp. as planned.

On June 21, the agency kept the company's ratings under review with negative implications pending a full review of the acquisition. It expected the ratings to be downgraded yet remain investment grade. Upon further assessment, DBRS now expects to assign a BB issuer rating to Capital Power Income and a BB rating with a recovery rating of RR4 to its senior and medium-term notes, which are currently rated BBB (high). DBRS would also potentially downgrade the cumulative preferred shares of CPI Preferred Equity Ltd. to Pfd-4 from Pfd-3.

Post-acquisition benefits such as an increase in the average power purchase agreement term, asset base and market capitalization, as well as greater diversification of fuel source, geography and counterparty risk, are offset by combined credit metrics that are weaker than initially anticipated, DBRS said. Also, an October equity offering by Atlantic Power that was less than expected should result in modestly higher total debt.

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