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Algonquin Power Co.
Algonquin Power & Utilities Corp.

���������ֳ� - New York - 23 Oct 2019: ���������ֳ� has affirmed the Long-Term Issuer Default Rating (IDR) of Algonquin Power & Utilities Corp. (APUC), its regulated utility subsidiary, Liberty Utilities Co. (LUCo), and its unregulated power generation subsidiary, Algonquin Power Co. (APCo) at 'BBB'. The Rating Outlook on each entity's Long-Term IDR is Stable.

���������ֳ� has affirmed the Short-Term IDR of APUC and LUCo at 'F2'.

In addition, ���������ֳ� has upgraded the Short-Term IDR of APCo to 'F2' from 'F3' and removed its Short-Term IDR from Under Criteria Observation. Based on its assessment of APCo's financial flexibility, ���������ֳ� has assigned the higher (F2) of the two Short-Term IDR options for APCo's rating profile. ���������ֳ� views the company's liquidity to be adequate to cover near-term cash outflows. APCo has a $500 million revolving credit facility (RCF) that matures on Oct. 6, 2023 and manageable near-term debt maturities. Any material weakening in financial flexibility, financial structure or operating environment conditions could lead to the assignment of the lower (F3) of the two Short-Term IDR options for APCo's rating profile.

Key Rating Drivers

APUC

Ownership of LUCo and APCo: ���������ֳ�'s ratings on APUC primarily reflect the company's ownership of LUCo, a regulated utility company that accounts for 75%-80% of consolidated EBITDA. LUCo's diversified, low-risk integrated electric, natural gas and water distribution operations support a strong business risk profile. APUC's ratings also reflect the company's ownership of APCo, an unregulated generation company with a relatively good business risk profile and robust cash flows.

Strong Organic Growth Opportunities: APUC has a significant amount of growth opportunities over the next several years, both at LUCo and APCo. Management estimates that organic growth opportunities alone could result in greater than 10% CAGR for consolidated EBITDA.

Supportive Consolidated Financial Metrics: APUC's financial profile is supported by stable and predictable earnings from LUCo's regulated utility operations and strong cash flows from APCo's power generation business. ���������ֳ� forecasts APUC's FFO-adjusted leverage to average 4.6x-5.0x and adjusted debt/EBITDAR 4.6x-4.9x through 2022. These metrics are supportive of APUC's 'BBB' Long-Term IDR.

Ownership Interest in Atlantica Yield: APUC's ratings also consider the company's ownership interest in renewable energy yield company Atlantica Yield (AY). Abengoa-Algonquin Global Energy Solutions (AAGES), APUC's 50/50 joint venture with Abengoa S.A., owns 44.2% of the common shares of AY. APUC owns 100% of AAGES' economic interest and voting rights in AY through its ownership of AAGES' preferred shares.

���������ֳ� considers AY's credit quality to be weaker than that of APUC. ���������ֳ� has made conservative projections for AY's distributions to APUC to help account for increased risk with AY's operations, particularly due to AY's exposure to a possible decrease in returns at its Spanish solar facilities. AAGES represents a relatively small amount of APUC's consolidated EBITDA, limiting the impact that any negative event at AY could have on APUC's credit quality.

Parent/Subsidiary Linkage: ���������ֳ� uses a bottom-up approach in determining the ratings for APUC, LUCo and APCo. The linkage follows a weak parent/strong subsidiary approach for LUCo and a strong parent/weak subsidiary approach for APCo. ���������ֳ� considers LUCo to be stronger than APUC due to the utilities' low-risk regulated operations. ���������ֳ� considers APUC to be stronger than APCo due to APUC's beneficial exposure to LUCo's regulated utility business.

Linkage between the Long-Term IDRs of LUCo and APUC is moderate. The moderate linkage is supported by separate financing through LUCo's financing affiliate company, Liberty Utilities Finance GP1, along with LUCo's strategic importance to APUC, accounting for 75%-80% of APUC's consolidated EBITDA. ���������ֳ� would not rate APUC's Long-Term IDR higher than that of LUCo; however, LUCo's Long-Term IDR could be up to one notch higher than APUC's Long-Term IDR.

There is a weak linkage between the Long-Term IDRs of APCo and APUC. The weak linkage is supported by weaker strategic ties between APUC and APCo than between APUC and LUCo. ���������ֳ� would not rate APCo's Long-Term IDR higher than that of APUC, although APCo's Long-Term IDR could be up to two notches lower than that of APUC.

LUCo

Diversified Portfolio of Utilities: LUCo benefits from its diversified portfolio of regulated utility operations, consisting of 38 regulated utility systems across 12 states. The assets are further diversified among electric (62% of operating profit), natural gas (25% of operating profit) and water (13% of operating profit). This asset diversification mitigates the company's exposure to any regional or state-specific shocks that could affect cash flows.

LUCo was built from several acquisitions, most significantly the acquisition of The Empire District Electric Company on Jan. 1, 2017. Empire District accounted for roughly 55% of LUCo's EBITDA in 2018. ���������ֳ� expects LUCo to remain acquisitive, primarily looking for smaller utility systems that could benefit from operational efficiencies. LUCo has a strong track record of improving performance at the utilities it acquires.

Improving Regulatory Environment: LUCo's overall regulatory environment is considered balanced and has improved in recent years. In Missouri, LUCo's largest state of operations, legislation was signed June 1, 2018, that allows for revenue decoupling at all electric utilities, effective Jan. 1, 2019. Following the conclusion of Empire District's next rate case, approximately two-thirds of LUCo's utility revenue would be fully decoupled, providing for more stability and predictability to earnings and cash flows. The Missouri legislation allows electric utilities to opt out of revenue decoupling if they would prefer to defer for future recovery 85% of all new depreciation expense, with the resulting regulatory asset balances subject to carrying charges at the utility's weighted average cost of capital and amortized over 20 years once included in rates.

LUCo has effectively managed its operations to earn an aggregate realized ROE in excess of its average authorized ROE of 9.6%. The company has maximized its returns by keeping O&M expense low, optimizing capital deployment and using cost-recovery riders to help limit its average regulatory lag to six months. LUCo's efficient utility operations also enable it to have lower customer rates than many of its peers. ���������ֳ� believes LUCo's balanced and improving regulatory environment supports its solid business risk profile.

Strong Organic Growth Opportunities: LUCo benefits from organic growth in the form of pipe replacement, reliability improvements and the Granite Bridge natural gas lateral project. The largest of LUCo's projects is its $1.4 billion "greening the fleet" initiative, which primarily involves retiring some of Empire District's coal-fired generation facilities and replacing the lost capacity with 600MW of wind power facilities in Missouri and Kansas. A regulatory decision is pending regarding the recovery method of these future costs through rates. Timely recovery of costs associated with the 600MW wind power investment would be important for LUCo to maintain a supportive financial profile during this large project.

Adequate Financial Metrics: LUCo's financial profile is supported by stable and predictable earnings from the company's regulated utility operations. ���������ֳ� forecasts LUCo's FFO-adjusted leverage to average 4.6x-5.0x and adjusted debt/EBITDAR 4.6x-5.0x through 2022. These metrics are adequate for LUCo's 'BBB' Long-Term IDR.

APCo

Conservatively-Managed Power Generation Business: APCo accounts for 20%-25% of APUC's consolidated EBITDA and consists of 34 power facilities, providing for a meaningful amount of asset diversification. Three-quarters of APCo's EBITDA is derived from U.S.-based assets, with one-quarter of EBITDA from Canadian assets. APCo owns and operates approximately 1.5 GW of gross generation capacity, of which 76% is wind, 8% solar, 8% hydro and 8% thermal.

Although ���������ֳ� views the unregulated power generation business somewhat riskier than regulated utilities, APCo's conservative management of the business mitigates much of this increased risk. Approximately 86% of APCo's electrical output is sold pursuant to long-term contractual arrangements with a production-weighted average remaining contract life of 14 years, providing a long timeline of high profitability margins and relatively stable and robust cash flows. In addition, APCo maintains a relatively low leverage on the business, with ���������ֳ� expecting adjusted FFO-leverage to average 4.3x-4.5x through 2022.

Strong Organic Growth Opportunities: APCo's power generation business has exhibited strong and steady growth over the past five years, with installed capacity growing at an 8% CAGR and operating profit growing at a 10% CAGR. ���������ֳ� expects that growth to continue, supported by APCo's large backlog of projects. APCo also has the ability to use 450MW worth of wind turbines that fall under the safe harbor provision, enabling the company to receive the full benefit of production tax credits once these turbines are put into service.

Supportive Financial Metrics: APCo's financial profile is supported by strong cash flows from the company's power generation business. ���������ֳ� forecasts APCo's FFO-adjusted leverage to average 4.3x-4.5x and adjusted debt/EBITDAR 4.3x-4.5x through 2022. These metrics are supportive of APCo's 'BBB' Long-Term IDR.

Derivation Summary

APUC's 'BBB' Long-Term IDR is appropriately positioned relative to peer parent holding companies, NextEra Energy, Inc. (NextEra; A-/Stable), AVANGRID, Inc. (BBB+/Stable) and CenterPoint Energy, Inc. (BBB/Stable). APUC's proportion of consolidated EBITDA generated from regulated utility operations is 75%-80%, more than NextEra (70%), CenterPoint (70%) and AVANGRID (75%). ���������ֳ� forecasts APUC's consolidated FFO-adjusted leverage to average 4.6x-5.0x through 2022, weaker than NextEra (4.2x-4.4x) and AVANGRID (4.2x-4.6x). APUC's weaker leverage metrics and much smaller scale of operations support APUC's lower relative rating compared with NextEra and AVANGRID. CenterPoint's diversified utility operations and supportive regulatory environment are stronger than APUC's; however, APUC's unregulated generation business provides cash flows that are more stable and predictable than CenterPoint's unregulated midstream operations.

LUCo benefits from significant geographic and regulatory diversification. LUCo consists of 38 natural gas, electric and water utility systems in 12 states. This portfolio compares favorably with larger single-state utilities from a diversification perspective, although its larger peers may benefit more from efficiencies of scale. More than half of LUCo's EBITDA is exposed to Missouri, which historically has had a somewhat challenging regulatory environment. However, regulation in Missouri has improved recently, with full revenue decoupling now allowed for both electric and natural gas utilities. Fellow Missouri integrated electric utility Union Electric Co. (BBB+/Stable) has a similar business risk profile to LUCo's Empire District utility operations. However, LUCo's financial metrics are relatively weaker than those of Union Electric. ���������ֳ� forecasts LUCo's FFO-adjusted leverage to average 4.6x-5.0x through 2022, compared with approximately 4.0x for Union Electric.

APCo benefits from having 86% of its generation under long-term contractual arrangements with investment-grade counterparties, mitigating some of the risk associated with its unregulated operations. The average length of its long-term contractual arrangements is 14 years, which provides APCo with a longer runway of relatively stable and predictable cash flows than some of its peer generation companies. Southern Power Co. (BBB+/Negative) has a similarly strong percentage of generation under long-term contracts. TransAlta Corporation (BB+/Stable), although highly hedged, had its power contracts start rolling off in 2018, and ���������ֳ� expects at least 50% of TransAlta's generation fleet to be exposed to market prices after 2020. APCo owns and operates approximately 1.5 GW of gross generation capacity spread across nine U.S. states and six Canadian provinces, providing beneficial geographic diversification. Southern Power has a much larger generation portfolio that is also geographically diversified. TransAlta's generation portfolio is also larger than APCo's, but it has significant exposure to Alberta, Canada, which has a more challenging power market. APCo's leverage metrics are weaker than those of Southern Power. ���������ֳ� forecasts APCo's FFO-adjusted leverage to average 4.3x-4.5x through 2022, compared with 3.0x-3.5x for Southern Power.

Key Assumptions

���������ֳ�'s Key Assumptions Within Its Rating Case for APUC, LUCo, and APCo:

--LUCo's capex totaling $5.3 billion over 2019-2023, $1.1 billion of which is for 600MW of wind power investments in 2020 and 2021;

--APCo's capex totaling $1.7 billion over 2019-2023;

--Timely recovery of costs associated with LUCo's 600MW wind power investment in Missouri and Kansas;

--Revenue decoupling is implemented for LUCo's Missouri electric utility operations;

--Normal weather and renewable energy production.

RATING SENSITIVITIES

APUC

Developments That May, Individually or Collectively, Lead to a Positive Rating Action

--Consolidated FFO-adjusted leverage expected to be less than 4.5x on a sustained basis;

--APUC's ratings are capped by the ratings on LUCo; LUCo's Long-Term IDR would need to be upgraded in order for APUC's Long-Term IDR to be upgraded.

Developments That May, Individually or Collectively, Lead to a Negative Rating Action

--Consolidated FFO-adjusted leverage expected to exceed 5.7x on a sustained basis;

--A downgrade of LUCo's Long-Term IDR would result in a commensurate downgrade of APUC's Long-Term IDR.

LUCo

Developments That May, Individually or Collectively, Lead to a Positive Rating Action

--FFO-adjusted leverage expected to be less than 4.5x on a sustained basis.

Developments That May, Individually or Collectively, Lead to a Negative Rating Action

--FFO-adjusted leverage expected to exceed 5.7x on a sustained basis;

--Adverse regulatory decisions that result in less-timely cost recovery or significantly weaker financial metrics;

--A two-notch downgrade of APUC's Long-Term IDR would result in a downgrade of LUCo's Long-Term IDR.

APCo

Developments That May, Individually or Collectively, Lead to a Positive Rating Action

--An upgrade of APCo's Long-Term IDR could only occur if APUC's Long-Term IDR were upgraded;

--FFO-adjusted leverage expected to be less than 3.5x on a sustained basis.

Developments That May, Individually or Collectively, Lead to a Negative Rating Action

--FFO-adjusted leverage expected to exceed 5.0x on a sustained basis;

--A significant decrease in the percentage of generation under long-term contracts;

--A downgrade of APUC's Long-Term IDR would result in a commensurate downgrade of APCo's Long-Term IDR.

Liquidity and Debt Structure

Adequate Liquidity: ���������ֳ� considers the liquidity for APUC and its subsidiaries LUCo and APCo to be adequate.

APUC has a $500 million senior unsecured revolving credit facility (RCF) that matures July 12, 2024.

LUCo primarily meets its short-term liquidity needs through the issuance of CP under its $500 million CP program, which is backed by an equal-sized senior unsecured RCF. CP borrowings would reduce availability under the RCF, which matures Feb. 23, 2023. LUCo had $26.8 million in borrowings and $7.8 million in letters of credit (LCs) issued as of June 30, 2019, leaving $465.4 million of unused availability under its RCF.

APCo's liquidity is primarily supported by a $500 million senior unsecured RCF that matures Oct. 6, 2023. APCo had $51.4 million in borrowings and $4.7 million in LCs issued as of June 30, 2019, leaving $443.9 million of availability under its RCF. APCo also has a $200 million LC facility that matures Jan. 31, 2021. The LC facility had $83.1 million in LCs issued as of June 30, 2019.

APUC's subsidiaries require modest amounts of cash on hand to fund their operations; APUC had $65.3 million of unrestricted cash and cash equivalents as of June 30, 2019, of which $4.3 million was at LUCo and $45.4 million was at APCo.

Long-term debt maturities over the next five years are manageable. LUCo has $441.5 million of long-term debt due in 2020, $195 million in 2022 and $95 million in 2023. APCo has $2.0 million in 2020, $116.6 million in 2021, $155.0 million in 2022 and $2.5 million in 2023. APUC does not have any long-term parent-level debt maturing within the next five years.

Summary of Financial Adjustments

Financial statement adjustments that depart materially from those contained in the published financial statements of APUC are disclosed below:

--APUC's junior subordinated notes are given 50% equity credit;

--APUC's Series A and D preferred stock are given 50% equity credit.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

For more information on ���������ֳ�'s ESG Relevance Scores, visit .

Additional information is available on

Additional Disclosures

• Dodd-Frank Rating Information Disclosure Form
• Solicitation Status
• Endorsement Policy