Calgary

Enmax credit rating lowered over worries about 'highly leveraged' purchase of U.S. utility

Calgary's mayor is downplaying the decision by an international agency to lower Enmax's credit rating due to what it calls a highly leveraged acquisition of a U.S. company.

Calgary mayor says purchase by city-owned company involves 'good debt'

Standard and Poor's (S&P) Global Ratings dropped Enmax's rating by one level, from triple B+ to triple B, citing concerns over the utility's purchase of Emera Inc. in Maine. (Evelyne Asselin/CBC)

Calgary's mayor is downplaying the decision by an international agency to lower Enmax's credit rating due to what it calls a highly leveraged acquisition of a U.S. company.

Standard and Poor's (S&P) Global Ratings dropped Enmax's rating by one level, from triple B+ to triple B.

The utility is wholly owned by the City of Calgary.

S&P said in its release that it sees weakening links between the city and Enmax and is concerned about the estimated $455-million debt the company took on when it bought Emera Inc.'s subsidiary, Emera Maine, a utility in the northeastern United States.

But Mayor Naheed Nenshi says the purchase has been financed entirely by Enmax through a private placement, not borrowing on the open market.

"That's good debt, quote unquote. It's debt that you want to take because it's making you money right away. It's investing in an appreciating asset instead of a depreciating asset," he said.

"That said, there are some very legitimate questions around process being raised. I am quite concerned that the credit rating agency didn't talk to the shareholder before suggesting that the ties between the shareholder and Enmax are weakening, which is not at all the case."

In a release, S&P said part of its motivation for lowering the rating for Enmax was its perception that there's "a weakening linkage between Enmax and its owner, the City of Calgary."

The agency noted the city's recent decision not to have any representation on Enmax's board of directors, calling it an indication that the city is reducing its active involvement in the company and a weakening of its support.

"We no longer expect the city would be as likely to provide extraordinary credit support as Enmax expands beyond the Alberta region," the agency said in a release.

Enmax hopes to close on the U.S. deal by the end of this year or early in 2020.

S&P said it will revisit the issue once Enmax has received all the necessary regulatory approvals, including from the Maine Public Utilities Commission.

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