Fitch Ratings assigns an 'AA-' rating to Hydro-Quebec's (HQ) proposed issuance of C$500 million senior unsecured debentures (5% coupon) due Feb. 15, 2050. This tranche of series JN debentures is in addition to C$2 billion currently outstanding and due in 2050. Fitch also affirms the following HQ ratings:
--Long-term Issuer Default Rating (IDR) at 'AA-';
--Short-term IDR at 'F1+';
--$35.5 billion unsecured debentures and medium-term notes at 'AA-';
--Commercial paper at 'F1+'.
The Rating Outlook is Stable.
SECURITY
Payment of HQ debt is supported by a pledge of the net revenues of the consolidated HQ system. HQ debt is further secured by an unconditional payment guarantee by the Province of Quebec (rated 'AA-', with a Stable Outlook by Fitch).
RATING RATIONALE
--HQ's ratings are heavily driven by support provided under the unconditional and irrevocable guarantee from HQ's sole owner - the government of Quebec.
--On a standalone basis, HQ is a low-cost integrated utility, with historically strong financial metrics and favorably 'green' hydroelectric generating resources.
--While the mainly hydropower resource base is subject to output variability due to hydrological conditions, HQ's substantial reservoirs help to mitigate this risk.
--HQ's regulated distribution and transmission divisions continue to receive fair treatment from the provincial regulatory authority, La Regie de L'Energie.
--HQ is in the midst of a very large capital program ($C25 billion through 2013) to add new hydroelectric and transmission projects. Through the construction period, financial measures will tighten but should remain adequate for the rating category.
--The rating takes into account HQ's recently proposed $C3.2 billion acquisition of a neighboring provincial utility, New Brunswick Power (NBP). Favorably, HQ will acquire quality generation and transmission assets from NBP.
KEY RATING DRIVERS
--The credit rating of the Province of Quebec - HQ's sole shareholder and guarantor of HQ debt.
--Construction risks associated with build-out of several large hydroelectric and transmission projects and HQ's generation division's ability to manage growing revenue volatility associated with planned increase in export power sales.
CREDIT SUMMARY
HQ is a vertically integrated electric system providing electric service to virtually all of the province of Quebec, Canada, or 3.9 million customers. HQ is comprised of four operating segments: power production, transmission, distribution, and equipment/construction divisions. HQ's power facilities include installed generating capacity totaling 36,429 megawatts and over 33,000 kilometers of transmission lines, placing HQ among the largest electricity systems in North America.
Applicable criteria available on Fitch's website at 'www.fitchratings.com' includes:
--'Revenue Supported Rating Criteria' (Dec. 29, 2009).
--'Public Power Rating Guidelines' (June 11, 2009).
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Contacts:
Fitch Ratings, New York
Lina Santoro, +1-212-908-0522
Christopher
Jumper, +1-212-908-0594
Brian Bertsch, +1-212-908-0549 (Media
Relations)
brian.bertsch@fitchratings.com