DBRS Confirms Maritimes & Northeast Pipeline Partnership at “A,” Stable

DBRS has today confirmed the Issuer Rating and Senior Secured Notes ratings of Maritimes & Northeast Pipeline Limited Partnership (M&NP Canada or the Partnership) at “A”, all with Stable trends. The ratings primarily reflect: (1) firm transportation contracts with investment grade shippers, (2) backstop provided by ExxonMobil Canada, (3) cash collateral for debt service and (4) regulated cost-of-service based tolls.

DBRS notes that M&NP Canada faces re-contracting risk when existing firm shipping contracts expire in 2019 due to the declining capacity utilization and increased competition in its U.S. Northeast markets. However, the existing ratings are immune from the re-contracting risk as the 6.90% Notes and the 4.34% Senior Secured Notes (the 4.34% Notes; collectively, the Notes) are amortizing and expected to be fully repaid by 2019, at which time the ExxonMobil Backstop also expires. M&NP Canada’s strategy for the pipeline post-2019 is unclear at this time.

M&NP Canada is a supply-push natural gas pipeline, which is highly dependent on the Sable Offshore Energy (Sable) and Encana’s Deep Panuke (Deep Panuke) Projects. DBRS recognizes that the natural gas reserves in the Scotian Shelf basin, which provide the supply for M&NP Canada, are declining, and there is no new reserve development activity, resulting in declining pipeline utilization (33% in 2013 from 65% in 2009). The shortfall in throughput was offset when Deep Panuke commissioned in August 2013. The high natural gas demand due to a cold winter in the New England area, resulted in average throughput volumes from Deep Panuke to rise for the first six months of 2014 to 263,774 dekatherms per day and improved utilization levels to 81% (31% in Q2 2013). Although Deep Panuke is expected to produce gas at least for the next eight years, DBRS is of the opinion that the recent higher throughput on M&NP Canada may not be sustainable in the long term, given the unpredictable production profile and the seasonality in demand.

In April 2014, the NEB approved M&NP Canada’s three-year negotiated toll settlement with its shippers covering 2014 to 2016. DBRS is of the opinion that the negotiated toll settlement provides predictable revenues adequate to cover its operating costs and generate sufficient free cash flow for debt servicing. M&NP Canada’s strong credit metrics continue to support current ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com

The applicable methodology is Rating Pipeline and Diversified Energy Companies, which can be found on our website under Methodologies.

This rating is endorsed by CBRS Ratings Limited for use in the European Union.