F-10EF: Fortis Inc. Files $2 Billion Shelf Prospectus for Potential Securities Offerings

Fortis Inc. has filed a short form base shelf prospectus allowing for the potential issuance of up to $2 billion in various securities over the next 25 months.

Summary

• Fortis Inc. has filed a short form base shelf prospectus to offer up to $2 billion in securities.
• The securities may include common shares, first preference shares, second preference shares, subscription receipts, and/or unsecured debt securities.
• The offerings may occur over a 25-month period, with terms determined by market conditions at the time of sale.
• The company may sell securities through underwriters, dealers, agents, or directly to purchasers.
• The prospectus qualifies an at-the-market distribution as defined in National Instrument 44-102.
• Fortis is a well-diversified North American regulated utility with revenue of C$12 billion in 2023 and C$8.6 billion for the nine months ended September 30, 2024.
• The company has total assets of C$66 billion as of December 31, 2023, with 99% in regulated utilities.
• Fortis serves 3.5 million utility customers across Canada, the U.S., and the Caribbean.
• As of December 31, 2023, 67% of Fortis' assets were located outside Canada, and 61% of its 2023 revenue was derived from foreign operations.
• The company plans to re-establish its at-the-market common equity program to permit sales of up to $500 million in common shares.

Sentiment

Score: 7

Explanation: The document is generally positive, outlining a standard financial procedure for a stable company. The company is well-established and has a history of dividend growth. However, there are some risks associated with the company's debt and regulatory environment.

Positives

• Fortis has a strong track record of dividend growth, increasing its annual common share dividend for 51 consecutive years.
• The company has a diversified portfolio of regulated utilities across North America and the Caribbean.
• The shelf prospectus provides flexibility for raising capital as needed over the next 25 months.
• The company is a well-known seasoned issuer, which simplifies the offering process.
• Fortis has a significant presence in both Canada and the U.S., with a substantial portion of its assets and revenue generated outside of Canada.

Negatives

• The prospectus does not qualify for the issuance of debt securities where the payment of principal or interest is linked to underlying interests such as commodities or indices.
• The company's ability to meet its obligations under the debt securities is dependent on the earnings and cash flows of its subsidiaries.
• Holders of debt securities will generally have a junior position to claims of creditors of Fortis' subsidiaries.
• The company's subsidiaries have substantial debt, and this debt is expected to continue to increase.
• There is currently no market through which the First Preference Shares, Second Preference Shares, Subscription Receipts or Debt Securities may be sold and purchasers may not be able to resell any First Preference Shares, Second Preference Shares, Subscription Receipts or Debt Securities purchased under this Prospectus.

Risks

• Changes in utility regulations and the outcome of regulatory proceedings could impact the company.
• Physical risks associated with providing electric and gas service, exacerbated by climate change, pose a threat.
• Environmental laws and regulations could create risks for the company.
• Capital projects and their impact on growth are a risk factor.
• Cybersecurity and information technology risks could disrupt operations.
• Weather variability and seasonality can affect heating and cooling loads, gas distribution, and hydroelectric generation.
• Commodity price volatility and supply of purchased power are risks.
• General economic conditions, including inflation, interest rates, and foreign exchange risks, could impact the company.
• The company is subject to the risk of not being able to enforce judgments obtained in Canada against any person who resides outside of Canada, even if the party has appointed an agent for service of process.
• As a foreign private issuer, Fortis is exempt from certain U.S. securities laws, which could result in less protection for investors.

Future Outlook

Fortis expects long-term growth in rate base to drive earnings that support dividend growth guidance of 4% to 6% annually through 2029.

Management Comments

• The Board of Directors declares dividends at its discretion.
• Management expects long-term growth in rate base will drive earnings that support dividend growth guidance.

Industry Context

This announcement is consistent with the trend of utility companies seeking flexible financing options to support growth and infrastructure investments. The at-the-market offering is a common method for companies to raise capital efficiently.

Comparison to Industry Standards

• The filing of a shelf prospectus is a standard practice for large, established utility companies like Fortis, allowing them to access capital markets efficiently.
• Other comparable companies such as Emera Inc. and Algonquin Power & Utilities Corp. also utilize shelf prospectuses for their financing needs.
• The targeted dividend growth of 4-6% is within the range of what is expected from stable, regulated utility companies.
• Fortis's asset base and revenue figures are consistent with other major North American utility players.

Stakeholder Impact

• Shareholders may see potential dilution from the issuance of new shares, but also benefit from the company's growth and dividend policy.
• Employees may be impacted by the company's growth and financial performance.
• Customers may benefit from the company's investments in infrastructure and service improvements.
• Creditors may be impacted by the company's debt levels and ability to repay obligations.
• Suppliers may be impacted by the company's capital expenditure plans.

Next Steps

• Fortis will determine the specific terms of any securities offerings based on market conditions.
• The company will file prospectus supplements for each offering.
• Fortis will re-establish its at-the-market common equity program.
• The company will continue to monitor market conditions and regulatory developments.

Key Dates

Keywords

securities offering, shelf prospectus, common shares, preference shares, debt securities, subscription receipts, regulated utilities, capital raise, at-the-market offering, dividend growth