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���������ֳ� - New York - 17 May 2019: ���������ֳ� has assigned a 'BB+' rating to Algonquin Power & Utilities Corp.'s (APUC) $350 million issuance of 6.2% fixed-to-floating rate junior subordinated notes (JSNs) series 2019-A due July 1, 2079. The notes are unsecured obligations. For analytical purposes, ���������ֳ� will assign these JSNs 50% equity credit due to their 60-year maturity and ability to defer interest payments for up to five consecutive years.

Net proceeds will be used to repay existing indebtedness under APUC's term credit facility entered into on Dec. 21, 2017, to partially finance APUC's acquisition of Enbridge Gas New Brunswick Limited Partnership and for general corporate purposes.

APUC's Long-Term Issuer Default Rating (IDR) is 'BBB'/Stable.

Key Rating Drivers

Diversified Portfolio of Utility Assets: APUC's regulated utility subsidiary, Liberty Utilities Co. (LUCo), accounted for nearly 80% of consolidated EBITDA in 2018. LUCo consists of a diversified portfolio of 38 regulated utility systems spread across 12 states, all located in the U.S. 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, the most significant of which was the acquisition of The Empire District Electric Company (Empire District) on Jan. 1, 2017. Empire District accounted for 56% 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. Significant improvement occurred in 2018 in Missouri, LUCo's largest state of operations. Legislation was signed June 1, 2018 that allows for revenue decoupling at all electric utilities in Missouri, effective Jan. 1, 2019. Two-thirds of LUCo's utility revenue is now 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 a 20-year period once included in rates.

LUCo has been able to effectively manage its operations to earn an aggregate realized ROE near its average authorized ROE of 9.6%. The company has been able to maximize 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 resulted in lower customer rates than many of its utility peers. ���������ֳ� believes LUCo's balanced and improving regulatory environment suppor ts its solid business risk profile.

LUCo's 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 the company's projects is its USD1.4 billion "greening the fleet" initiative, which primarily involves retiring some of Empire District's coal-fired generation facilities and replacing the lost generation capacity with 600MW of wind power facilities in Missouri. 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.

Conservatively-Managed Power Generation Business: APUC's unregulated power generation subsidiary, Algonquin Power Co., doing business as Liberty Power, ( LPCo) accounted for roughly 20% of APUC's consolidated EBITDA in 2018. LPCo consists of 39 power facilities, providing for a meaningful amount of asset diversification. Approximately 70% of LPCo's EBITDA is derived from U.S.-based assets, with 30% of EBITDA from Canadian assets. LPCo owns and operates 1.5GW of combined gross generati ng capacity, of which 76% is onshore wind, 8% is thermal, 8% is hydro and 8% is solar.

Although ���������ֳ� views the unregulated power generation business as somewhat riskier than regulated utilities, LPCo's conservative management of the business mitigates much of this increased risk. Long-term power purchase agreements (PPAs) with investment-grade counterparties cover 86% of LPCo's generation. The average length of LPCo's PPAs is 14 years, providing a long timeline of high profitability margins and relatively stable and robust cash flows. LPCo maintains a moderate amount of leverage on the business, with ���������ֳ� expecting FFO-adjusted leverage to average 4.1x-4.4x through 2020.

LPCo's Strong Organic Growth Opportunities: LPCo's power generation business has exhibited strong and steady growth over the past few years, with installed capacity growing at an 8% CAGR over 2013-2018 and operating profit growing at a 10% CAGR over 2013-201 8. ���������ֳ� expects growth to continue, supported by LPCo's large backlog of projects. LPCo 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 during the next two years.

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 LPCo's power generation business. ���������ֳ� expects FFO-adjusted leverage to average 4.8x-5.2x and FFO fixed-charge coverage to average 3.8x-4.3x through 2020. 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., currently owns 41.5% 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.

APUC/LUCo Rating Linkage: ���������ֳ� uses a bottom-up approach in determining the ratings, and the APUC/LUCo linkage follows a weak parent/strong subsidiary approach. ���������ֳ� considers LUCo to be stronger than APUC due to LUCo's solid regulated utility operations and APUC's exposure to LPCo's relatively riskier unregulated power generation business. There is moderate linkage between the Long-Term IDRs of LUCo and APUC. The moderate linkage is supported by separate financing through LUCo's financing affiliate company, LU Finance GP1, along with LUCo's strategic importance to APUC by accounting for 80% of consolidated EBITDA. ���������ֳ� would not allow APUC's Long-Term IDR to be higher than that of LUCo, although LUCo's Long-Term IDR could be up to one notch higher than that of APUC.

APUC/LPCo Rating Linkage: ���������ֳ� uses a bottom-up approach in determining the ratings, and the APUC/LPCo linkage follows a strong parent/weak subsidiary approach. ���������ֳ� considers APUC to be stronger than LPCo due to APUC's beneficial exposure to LUCo's regulated utility operations. There is weak linkage between the Long-Term IDRs of LPCo and APUC. The weak linkage is supported by weaker strategic ties between APUC and LPCo than between APUC and LUCo. ���������ֳ� would not allow LPCo's Long-Term IDR to be higher than that of APUC, although LPCo's Long-Term IDR could be up to two notches lower than APUC's 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. (CenterPoint; BBB/Stable). APUC's proportion of consolidated EBITDA generated from regulated utility operations is 80%, more than NextEra (70%), CenterPoint (70%) and AVANGRID (75%-80%). ���������ֳ� projects APUC's consolidated FFO-adjusted leverage to average 4.8x-5.2x through 2020, weaker than NextEra (3.6x-4.1x) and AVANGRID (4.2x-4.6x), but slightly stronger than CenterPoint (5.5x).

APUC's weaker leverage metrics and much smaller scale of operations support APUC's lower relative rating compared to 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 much more stable and predictable than CenterPoint's unregulated midstream operations and other non-utility businesses.

Key Assumptions

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

--LUCo's capex totaling USD3.3 billion over 2018-2021, USD1.1 billion of which is for 600MW of wind power investments in 2020 and 2021;

--LPCo's capex totaling USD1.3 billion over 2018-2021;

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

--Normal weather and renewable energy production.

RATING SENSITIVITIES

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.

Liquidity and Debt Structure

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

APUC's liquidity includes a CAD165 million senior unsecured revolving credit facility (RCF) that matures Nov. 19, 2019. APUC had USD67.9 million of borrowings and USD16.5 million of LCs issued under its RCF as of March 31, 2019.

LUCo's liquidity is primarily supported by a USD500 million senior unsecured RCF and a USD150 million CP program. The RCF matures Feb. 23, 2023. LUCo had USD 118 million of borrowings and USD 7.8 million of LCs issued under its RCF as of March 31, 2019.

LPCo's liquidity is primarily supported by a USD500 million senior unsecured RCF that matures Oct. 6, 2023. LPCo also has a USD200 million LC facility that matures Jan. 31, 2021. LPCo did not have any borrowings under its RCF but had USD92 .3 million of LCs issued as of March 31, 2019.

APUC's operating subsidiaries require modest amounts of cash on hand to fund their operations; APUC had USD85 million of unrestricted cash and cash equivalents as of March 31, 2019.

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:

--Operating leases are capitalized using the 8x rent expense method;

--Junior subordinated notes are given 50% equity credit.

Date of Relevant Committee

26-Sep-2018

Sources of Information

Additional information is available on

Additional Disclosures

• Solicitation Status
• Endorsement Policy