Fitch Rates Hydro-Quebec

Got this today. Interesting. The new deal for the sale is seen as positive for Quebec.

Fitch Rates Hydro-Quebec's Expanded Medium Term Note Program 'AA-
'; Outlook Stable
NEW YORK, Jan 21, 2010 -- BUSINESS WIRE
Fitch Ratings assigns an 'AA-' to Hydro-Quebec's (HQ) expanded medium term note program. HQ received approval from the government of Quebec to increase the maximum size of its medium term note program from $16 billion to $20 billion. Fitch also affirms the following HQ ratings:
--Long-term Issuer Default Rating (IDR) at 'AA-';
--Short-term IDR at 'F1+';
--$35.5 billion unsecured debentures and medium term notes at 'AA-';
--Commercial paper at 'F1+'.
The Rating Outlook is Stable.
SECURITY
Payment of HQ debt is supported by a pledge of the net revenues of the consolidated HQ system. HQ debt is further secured by an unconditional payment guarantee by the Province of Quebec (rated 'AA-', Stable Outlook by Fitch).
RATING RATIONALE
--HQ's ratings are heavily driven by support provided under the unconditional and irrevocable guarantee from HQ's sole owner - the government of Quebec.
--On a stand alone basis, HQ is a low cost integrated utility, with historically strong financial metrics and favorably 'green' hydroelectric generating resources.
--While the mainly hydropower resource base is subject to output variability due to hydrological conditions, HQ's substantial reservoirs help to mitigate this risk.
--HQ's regulated distribution and transmission divisions continue to receive fair treatment from the provincial regulatory authority, La Regie de L'Energie.
--HQ is in the midst of a very large capital program ($C25 billion through 2013) to add new hydroelectric and transmission projects. Through the construction period, financial measures will tighten but should remain adequate for
the rating category.
--The rating takes into account HQ recently proposed $C3.2 billion acquisition of a neighboring provincial utility, New
Brunswick Power (NBP). Favorably, HQ will acquire NBP's quality generation assets as well as firm transmission rights into New England.
KEY RATING DRIVERS
--The credit rating of the Province of Quebec - HQ's sole shareholder and guarantor of HQ debt.
--Construction risks associated with build out of several large hydroelectric and transmission projects and HQ generation division's ability to manage growing revenue volatility associated with planned increase in export power sales.
CREDIT SUMMARY
Since 2009, HQ has embarked on a major, roughly $C25 billion capital program through 2013. The capital plan includes the construction of several large hydropower projects, transmission additions and distribution system
upgrades. The projects are in varying stages of development and continue to meet important milestones and commissioning dates. By 2013, HQ is projecting to have another 1000 megawatts (MW) of new hydro-generating capacity online (compared to existing capacity of 36,429 MW for 2008). While a portion of the new generation is
needed to meet modest native load growth, an increasing proportion will be used for export (offsystem) sales.
Offsystem sales are typically subject to greater volume and price volatility (not based on a regulated tariff). Positively, given the increasing global demand, particularly in the U.S. and Canada, for non-carbon emitting and renewable power
resources, HQ's 'green' hydropower exports should remain a valuable and marketable resource for the foreseeable future.
Lastly, with respect to the proposed acquisition of NBP, HQ is acquiring quality 'green' generating assets and another
transmission interconnection into New England, which lends support to HQ's plan to increase export power sales.
Included in the generating assets to be acquired is NBP's Point Lepreau Nuclear Plant, currently being refurbished. HQ does not assume any liabilities with respect to the nuclear facility until refurbishment is completed and that portion of
the acquisition is closed on or about Jan. 1, 2011. HQ will make two payments totaling $C3.2 billion; the first ($C1.8
billion) due on or about March 31, 2010 and the remainder due at the time of closing of the Point Lepreau nuclear transaction. HQ will also maintain a long term wholesale power supply arrangement to serve NBP's customers at a
favorable, but fixed price for the first five years of the contract. Thereafter, the wholesale power contract prices will adjust according to the New Brunswick consumer price index.

Positively, the acquisition price has declined to $C3.2 billion from the original estimate of $C4.75 billion. The acquisition is projected to be positive for HQ earnings within the first year, and will not materially change HQ's debt
position. Equity to total capitalization will fall to the 30% level through the construction period (to 2013), but should remain adequate for the rating category.
HQ is a vertically integrated electric system providing electric service to virtually all of the province of Quebec, Canada, or 3.9 million customers. HQ is comprised of four operating segments: power production, transmission,
distribution, and equipment/construction divisions. HQ's power facilities include installed generating capacity totaling 36,429 MW and over 33,000 kilometers of transmission lines, placing HQ among the largest electricity systems in
North America.
Applicable criteria available on Fitch's website at 'www.fitchratings.com' includes:
--Revenue Supported Rating Criteria, (Dec. 29, 2009).
--Public Power Rating Guidelines, (June 11, 2009).
Additional information is available at www.fitchratings.com.