Fitch Ratings has assigned a Long-Term Issuer Default Rating (IDR) of 'BBB+' to
The Rating Outlook is Stable. BIH's 'F2' Short-Term IDR and CP rating correspond to its 'BBB+' Long-Term IDR under Fitch's Corporate Rating Criteria.
BIH is a wholly owned subsidiary
BIP's ratings are supported by the relatively stable and predictable nature of the contracted cashflows generated by a large and diversified portfolio primarily of utility, midstream and transport assets. The companies are diversified across the asset classes and geographic areas. The ratings consider the structural subordination of
Fitch expects BIP to continue to be acquisitive to achieve its targeted growth rate. The ratings assume that growth will be executed in a credit supportive manner and that
Fitch Ratings has withdrawn
Key Rating Drivers
Large and Diversified Asset Base: BIP's large operating scale and asset diversification are its key strengths and mitigate regulatory and counterparty risk affecting a single company or market segment. BIP is one of the largest global owners and operators of infrastructure assets with approximately 40 assets in 16 countries as of YE 2021. The portfolio is diversified across midstream (37% of 2022 FFO), utility (33%) and transport (25%) companies with a smaller portion from the data segment (6%). Fitch expects that data projects will grow as a focus for future investment. The geographic mix is global, with about 45% of the companies located in
There is some concentration with the largest five companies comprising about 55% of FFO in 2022, driven primarily by BIP's largest holding,
Predictable Cash Flow from Creditworthy Subsidiaries: BIP's portfolio companies produce stable and predictable cashflows underpinned by contracted and regulated cash flows. For the utility companies, about three-quarters are regulated utilities, electric transmission and pipelines. Most of the midstream segment operate under long term contracts. The weighted average contract life of the largest investments is 19 years. Inflation is a positive factor that has contributed to management's organic growth target of 6%-9%. About three quarters of EBITDA is inflation linked.
The portfolio has some volume risk, totaling about 30% of FFO and is primarily in the transport and some midstream companies. This volume risk will remain a factor in the portfolio.
BIP structures substantially all of its subsidiary level debt to meet investment grade standards. Fitch estimates that the average weighing of the subsidiary companies range from 'BBB-' to 'BBB'. Most subsidiaries have leverage and debt service coverage ratio covenants for default and lock-up to block distributions. The portfolio is performing well, and in compliance with these covenants.
Disciplined Acquisitions: Fitch expects BIP to continue to be acquisitive as part of the management strategy. As a strategic owner of infrastructure assets, BIP regularly acquires and monetizes assets to maximize shareholder value. BIP has a track record of creating value by acquiring, building and financing assets, and actively managing its operations before recycling capital. It targets companies that provide essential products and services and focuses on improving utilization.
Acquisitions are a driver to management's 5%-9% annual distribution growth target. With a growth in the scale of acquisitions, Fitch believes the acquisitions will adhere to BIP's strategy of acquiring essential, long life infrastructure assets supported by predictable revenue streams.
BIP has a long-term investment horizon and has the financial strength and operating experience to revamp assets to drive long term value. BIP acquired
Credit metrics: Fitch applies a deconsolidated approach in calculating BIP's credit metrics. The subsidiaries use corporate debt that is non-recourse debt and the consolidated credit metrics are not analytically meaningful.
Sponsorship Beneficial: Fitch believes BIP's parent and strategic partner,
BIP has master service agreement with
Parent Subsidiary Linkage: BIP, Brookfield Bermuda, and BIPIC's credit profile under Fitch's Parent Subsidiary Ratings Linkage Criteria is consolidated for the ratings and Fitch has assigned the same IDRs. Fitch determines the standalone credit profile based on consolidated metrics. Fitch believes BIP has a weaker credit profile than its subsidiaries and Fitch has followed the stronger subsidiary path. BIP is the parent of the subsidiaries, and the subsidiaries provide a source of cash flow for BIP. There is a cross guarantee between the entities. Legal ring fencing is open as there are minimal limitations. Access and control are open given BIP's 100% ownership of the subsidiaries.
Derivation Summary
BIP is similarly positioned relative to its peer
All generate cashflow from distributions from subsidiary or projects. BEP has a relatively longer remaining contract life of 14 years compared with a range of 6 years-20 years at BIP (for top five assets). However, BIP's top five assets comprise about 50% of FFO while BEP is more diversified with its top 15 projects are about 50% of FFO. AES has a less favorable asset mix given its coal generation, shorter contract length and geopolitical risks compared with BIP and BEP.
All have a demonstrated history of stable aggregate distributions from its projects and subsidiaries. Unlike BIP and BEP, AES does not set aggressive growth targets, which Fitch views favorably. BEP targets distribution growth of 5% to 11% which is in line with BIP. BIP and BEP benefit from the sponsorship from BN, which provides robust capital access and liquidity while AES depends on its own internal cash flow and equity issuance for funding.
BIP's holdco-only FFO Leverage is more favorable as Fitch estimates it will range from 2.4x-3.0x. BEP is estimated to be in the high 3x range in the next three years, similar to AES. This difference in leverage in addition to the less favorable asset mix, shorter contract length and geopolitical risks account for the two-notch difference compared to AES.
Key Assumptions
Portfolio diversification remains within management guidelines with approximately 30% each from utility, midstream and transport companies and data contributing 10% of FFO;
Acquisition run rate is about
Annual FFO, distribution and yield growth in line with management guidance;
Acquisitions and asset sales are roughly equal with a small portion debt funded.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Improvement in the average weighted credit quality of the subsidiary companies and lower concentration in the largest five subsidiary companies.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in the average weighted credit quality of the subsidiary companies;
A growth strategy underpinned by acquisitions or addition of assets that bear material volumetric, commodity, counterparty or interest rate risks or using excessive recourse-debt financing;
Counterparty or asset underperformance resulting in a material shortfall of expected holdco cash flow versus Fitch's projections.
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 '
Liquidity and Debt Structure
Adequate Liquidity: As of
As of
Issuer Profile
Summary of Financial Adjustments
The perpetual subordinated notes and the preferred instruments are given a 50% equity credit due to their perpetuality and cumulative nature of the dividends and interest.
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 Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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