���������ֳ�

���������ֳ� - New York - 10 Jan 2022: ���������ֳ� has assigned a 'BB+' rating to Algonquin Power & Utilities Corp.'s (APUC, BBB/Stable) issuance of junior subordinated notes (JSNs), including the CAD-denominated series 2022A JSNs and the USD-denominated series 2022B JSNs. The notes are unsecured obligations that mature in 2082 and rank pari passu with APUC's existing JSNs. Net proceeds will be used to partially finance APUC's acquisition of Kentucky Power Company and AEP Kentucky Transmission Company, Inc.; prior to closing of the acquisition, APUC expects to use such net proceeds to reduce amounts outstanding under existing credit facilities of the company and its subsidiaries.

���������ֳ� has assigned the JSNs 50% equity credit based on its "Corporate Hybrids Treatment and Notching Criteria." The hybrid notes are deeply subordinated and rank senior only to APUC's preferred stock and common equity, while coupon payments can be deferred at the option of the issuer for up to five consecutive years. This is reflected in the 'BB+' rating, which is two notches lower than APUC's senior unsecured rating. The 50% equity credit also reflects the hybrid's cumulative interest coupon, which is more debt-like in nature.

Key Rating Drivers

Acquisition of Kentucky Power

���������ֳ� views the transaction as neutral to the credit quality of APUC and its regulated utilities subsidiary Liberty Utilities Co. (LUCo; BBB/Stable). The ratings are supported by the underlying credit quality of Kentucky Power, its regulated integrated electric utility operations that have approximately 228,000 customer connections, and what ���������ֳ� expects to be a relatively credit-supportive financing plan for the acquisition.

The total purchase price is approximately $2.85 billion and includes the assumption of approximately $1.22 billion in debt. On Nov. 8, 2021, APUC closed on a bought deal offering of CAD 800 million of common equity, with net proceeds totaling CAD 768 million ($617 million).

The Kentucky Power acquisition would improve APUC's business profile by slightly increasing its regulated utility business mix to nearly 80% of consolidated EBITDA. The acquisition also provides APUC and LUCo with organic growth opportunities in the form of replacing coal-fired generation with renewable energy. LUCo has a strong track record of having implemented similar transitions to clean power generation at its utility subsidiaries, most notably at Empire District Electric in Missouri. ���������ֳ� expects any conditions imposed by the Kentucky Public Service Commission will not be a deterrent to improved credit metrics at Kentucky Power.

Ownership of LUCo and APCo

APUC's ratings primarily reflect the company's ownership of LUCo, which owns regulated utility businesses that account for a majority of APUC's consolidated EBITDA. LUCo's diversified, low-risk electric, natural gas, water and wastewater utility operations support a strong business risk profile. APUC's ratings also reflect the company's ownership of Algonquin Power Co. (APCo; BBB/Stable), an unregulated power generation company with a relatively good business risk profile and robust cash flows.

Weak 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. However, ���������ֳ� forecasts APUC's FFO leverage to be relatively high at around 5.6x in 2021 and then increase to slightly above 6.0x in 2022 due to the acquisition of Kentucky Power. ���������ֳ�'s negative sensitivity for FFO leverage is greater than 5.7x on a sustained basis. ���������ֳ� expects APUC's FFO leverage to improve in 2023 and 2024 to around 5.7x and 5.5x, respectively, returning to levels supportive of APUC's ratings but remaining somewhat weak.

Ownership Interest in Atlantica

APUC's ratings also consider the company's ownership interest in renewable energy yield company Atlantica Sustainable Infrastructure plc (Atlantica; BB+/Stable). Atlantica is owned approximately 44% by Liberty (AY Holdings) B.V., an entity whose voting interests are 99.9% indirectly owned by APUC. Atlantica represents a relatively small amount of APUC's consolidated EBITDA, limiting the impact that any negative event at Atlantica could have on APUC's credit quality.

Parent/Subsidiary Linkage

Parent and subsidiary linkage exists and is determined by ���������ֳ�'s "Parent and Subsidiary Linkage Rating Criteria". ���������ֳ� determines APUC's standalone credit profile (SCP) based on consolidated financial metrics; a bottom-up approach is used in determining the SCP of LUCo and APCo. APUC centrally manages the treasury function for its subsidiaries and is the sole source of equity; however, APCo issues its own long-term debt and LUCo issues long-term debt through an affiliate financing company, Liberty Utilities Finance GP1 (Liberty Finance).

LUCo is rated the same as APUC. If ���������ֳ� were to consider LUCo's SCP to be stronger than APUC's, the linkage would follow a weak parent/strong subsidiary approach. Emphasis would be placed on the utilities' low-risk regulated operations and APUC's exposure to APCo's relatively riskier unregulated power generation business. The legal ring-fencing factor would be considered "open" due to APUC's control over LUCo's financial policy; the access & control factor would be considered "porous." ���������ֳ� considers LUCo to be strategically important to APUC, accounting for a majority of APUC's consolidated EBITDA. ���������ֳ� would not rate APUC's Long-Tern IDR higher than LUCo's; however, LUCo's Long-Term IDR could be up to one notch higher than APUC's.

APCo is rated the same as APUC. If ���������ֳ� were to consider APCo's SCP to be weaker than APUC's, the linkage would follow a strong parent/weak subsidiary approach. ���������ֳ� would consider legal ties to be weak because APUC does not guarantee APCo's debt. Strategic ties would be considered medium due to APCo's renewable energy generation expertise, which benefits LUCo's operations. Operational ties would be considered weak due to a lesser importance of APCo's operations to APUC's consolidated business. ���������ֳ� would not rate APCo's Long-Term IDR higher than APUC's; however, APUC's Long-Term IDR could be up to one notch higher than APCo's.

Derivation Summary

APUC's 'BBB' Long-Term IDR is appropriately positioned relative to peer parent holding companies NextEra Energy, Inc. (A-/Stable) and AVANGRID, Inc. (BBB+/Negative). APUC's proportion of consolidated EBITDA from regulated utility operations is 75%-80%, more than NextEra (70%-75%) and AVANGRID (75%). ���������ֳ� forecasts APUC's consolidated FFO leverage to approximate 5.5x-5.7x in 2021, increase to slightly more than 6.0x in 2022 due to the acquisition of Kentucky Power and then return to around 5.5x-5.7x in 2023 and 2024.

���������ֳ� expects NextEra's FFO leverage to be elevated in the near term before improving to around 4.5x by 2023. ���������ֳ� expects AVANGRID's large capex plan and spending on renewable projects to weaken leverage in the near term, with FFO leverage expected to average over 6.5x through 2022 before improving to around 5.0x in 2023. APUC's weaker sustainable leverage metrics and much smaller scale of operations support APUC's lower relative rating compared with those of NextEra and AVANGRID.

Key Assumptions

���������ֳ�'s Key Assumptions Within Its Rating Case for the Issuer Include:

--Kentucky Power acquisition to close mid-2022 and be funded in a credit-supportive manner that won't meaningfully increase leverage at APUC or LUCo;

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

--Normal weather and renewable energy production.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to a positive rating action/upgrade:

--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;

--Consolidated FFO leverage expected to remain at less than 4.5x on a sustained basis.

Factors that could, individually or collectively, lead to a negative rating action/downgrade:

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

--An additional material increase to the ratio of parent-level debt to consolidated debt;

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

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

Liquidity and Debt Structure

Adequate Liquidity: ���������ֳ� considers APUC's liquidity to be adequate.

APUC has a $500 million senior unsecured RCF that matures July 12, 2024. APUC had $30 million drawn and $3.7 million of letters of credit (LCs) issued as of Sept. 30, 2021, leaving $466.3 million of unused availability under its RCF. APUC has a separate $50 million uncommitted bilateral LC facility that had $16.1 million of LCs issued as of Sept. 30, 2021.

APUC's subsidiaries require modest cash on hand to fund their operations. APUC had $190.8 million of unrestricted cash and cash equivalents as of Sept. 30, 2021, of which $62.4 million was at LUCo and $65.1 million was at APCo.

Long-term debt maturities are manageable. APUC does not have any long-term parent-level debt maturing within the next five years.

Issuer Profile

APUC is a holding company that owns diversified international utility and power generation operations through LUCo, APCo and its other subsidiaries and investments.

Summary of Financial Adjustments

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

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

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

Date of Relevant Committee

27 October 2021

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means 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

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Corporate Monitoring & Forecasting Model (COMFORT Model), v7.9.0 (1)

ADDITIONAL DISCLOSURES

• Solicitation Status
• Endorsement Policy

ENDORSEMENT STATUS