DBRS Confirms Enbridge Inc. at A (low), R-1 (low) and Pfd-2 (low), Stable Trends

DBRS has confirmed the Issuer Rating of Enbridge Inc. (ENB or the Company) at A (low) and ratings on ENB’s Medium-Term Notes & Unsecured Debentures, Commercial Paper and Cumulative Redeemable Preferred Shares ratings at A (low), R-1 (low) and Pfd-2 (low), respectively, all with Stable trends. The ratings reflect (1) a relatively strong business risk profile, (2) pressure on ENB’s near-to-medium-term credit metrics and (3) results under the ten-year Competitive Tolling Settlement (CTS), effective July 1, 2011.

(1) ENB’s low-risk, mostly regulated operations provide roughly 85% to 90% of its earnings. ENB derived about one-quarter of its segment earnings for the last 12 months (LTM) ending June 30, 2014, from entities with no external debt. The remaining three-quarters of segment earnings were derived mostly from entities with low-risk, mostly regulated operations that generate stable earnings, including Enbridge Pipelines Inc. (EPI), Enbridge Gas Distribution Inc. (EGD), Enbridge Income Fund (EIF, 67% economic interest owned by ENB) and Enbridge Energy Partners, L.P. (EEP, 34% economic interest owned by ENB), accounting for a combined 60% of segment earnings. DBRS expects ENB’s business risk profile to remain strong as a result of the very high weighting of capex toward (approximately 93%) low-risk liquids pipelines projects.

(2) DBRS expects ENB’s credit metrics, on fully consolidated and modified consolidated bases, to be pressured during the early years of its planned $37 billion capex program (excluding Sponsored Investments) from 2014 to 2018, due to a significant debt financing component related to large free cash flow deficits. DBRS expects improvement in the later years (as the longer-dated projects come onstream and begin to generate cash flow).

(3) The CTS provides for a joint tariff for volumes originating in Western Canada that are transported on the Canadian (Enbridge System or Mainline) and U.S. (Lakehead) portions of the Enbridge/Lakehead crude oil pipeline system. Under the International Joint Tariff (IJT) agreement, any increase in the Lakehead System’s tolls under its existing agreements would reduce tolls on the Mainline (which accounts for one-third of ENB’s earnings) in the absence of a corresponding (or larger) increase in the overall IJT toll, although increased overall volumes would more than offset reduced tolls on the Mainline on a consolidated basis. Mainline earnings have generally benefited from the CTS provisions to date, although subject to volume and operational risks.

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.

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

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