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S&P lowers ENMAX after outline of Emera Maine acquisition plan

S&P Global Ratings lowered ENMAX Corp.'s issuer credit rating to 'BBB' from 'BBB+' and placed the city of Calgary-owned company on CreditWatch Negative.

The company is in the process of acquiring Emera Inc. subsidiary Emera Maine for $1.3 billion, assuming approximately $350 million in debt. The utility plans to issue private debentures to fund the acquisition.

S&P Global Ratings expects that the city's relationship with the utility is weakening. The city recently decided to not have any representation on ENMAX's board of directors and is not expected to show "extraordinary credit support" to the transaction as the company expands beyond the Alberta region. The city is not expected to provide equity to ENMAX to fund the transaction.

ENMAX generates, transmits and distributes electricity in Calgary and portions of the Alberta. It also has a retail electricity and natural gas business in the province. It said the acquisition of the Maine utility would expand its regulated utility business and provide for the majority of its cash flow from regulated sources.

"Although the pending acquisition would modestly strengthen the combined company's business risk, this is more than offset by our expectation that the highly leveraged transaction will significantly weaken ENXAX's financial measures, likely resulting in a one-notch downgrade," the rating agency said in an Oct. 3 rating action.

"The relative proportion of debt within ENMAX's reported capital structure issued under the Alberta Capital Finance Authority will decline to about one-third of ENMAX's consolidated debt after the Emera Maine closing."

The acquisition is expected to close by year-end 2019 or early 2020. The Maine Public Utilities Commission has yet to decide on the proposal, and on Oct. 4 scheduled hearings for Oct. 21 in Orono, Maine, and Presque Isle, Maine, where it will accept public comments.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.