08:58 AM EST, 12/16/2022 (MT Newswires) -- RBC Capital Markets on Thursday noted the U.S. Federal Energy Regulatory Commission's denial of Algonquin Power & Utilities Corp. (AQN.TO)'s planned US$2.65 billion acquisition of Kentucky Power.
"It is unclear to us why the transaction was denied, but we believe the end result may be that the transaction is further delayed (rather than not take place at all)," RBC said.
RBC said it expects Algonquin and American Electric Power to work with the regulator to resolve outstanding issues.
According to RBC, Algonquin's shares have traded higher on the news as a potential termination of the transaction would provide the company with greater financial flexibility and reduce the company's exposure to floating interest rates.
RBC gave Algonquin a sector perform rating and US$12.00 price target.
Meanwhile, National Bank of Canada cut Algonquin's price target to US$12.00 from US$12.50 with a sector perform rating.
The bank said the transaction denial may give Algonquin the opportunity to walk away from the deal, especially with questions about its earnings growth and leverage needed to complete the deal.
"If the [deal] is called off or if [Algonquin] is able to show a path to a stronger balance sheet and a simplified structure, we believe the stock would trade higher," the bank said.