DBRS Confirms Express Pipeline Limited Partnership & Express Pipeline LLC at A (low) and BBB, Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the rating on the Senior Secured Notes due 2020 of Express Pipeline Limited Partnership & Express Pipeline LLC’s (collectively, Express or the Company) at A (low) and the rating on its Subordinated Secured Notes due 2019 at BBB. All trends are Stable. The ratings reflect the Company’s low business risk profile underpinned by long-term take-or-pay shipping contracts, the majority of which are with investment-grade counterparties, providing predictable and growing cash flows as well as strong financial credit metrics with no direct exposure to commodity price risk.

Express is a crude oil pipeline system that offers competitive tolling options for Western Canada Sedimentary Basin (WCSB), the Bakken and the Rockies crude oil producers shipping to refineries in the U.S. Rockies (PADD IV) and Midwest (PADD II) regions. Despite the weak commodity price environment, average volumes flowing on the pipeline were higher in 2015. The Company’s committed long-term take-or-pay contracts, which cover nearly 90% of the pipeline’s capacity, and fee-for-service tolling structure with annual toll escalators provide for predictable revenue growth and cash flows. Express faces volume risk on the uncommitted volumes flowing on the Platte section of the pipeline from Wyoming to Illinois. In Q4 2015, lower volumes flowed on the Platte section of the pipeline because of lower crude oil price differentials; however, the impact was more than offset by higher volumes on Express from Alberta to Wyoming, resulting in a higher average capacity utilization on the pipeline in 2015. The Company is expanding the Express pipeline by Q4 2016 via the Express Enhancement Project to meet additional demand. The $135 million project is underpinned by long-term, fee-based contracts and is expected to maximize system throughput through the addition of on-system terminal and storage assets that provide increased upstream and downstream connectivity. DBRS expects the Company’s business risk profile to remain stable over the medium term.

The Company’s financial risk profile is supported by a highly contracted stream of cash flows. The Company’s credit metrics (cash flow-to-debt of 139%; debt-to-capital of 27.7%; EBIT-to-interest of 16.7 times at December 31, 2015) are in line with DBRS’s expectations. Financial metrics have continued to improve with growing cash flows and ongoing amortization of debt. DBRS expects debt levels to decrease with amortization of the Subordinated Notes due 2019, which are scheduled to be fully repaid by December 2017. DBRS anticipates that Express will adequately support its planned capital projects in the near term through internally generated cash flow with no incremental debt issuance.

Notes:
All figures are in U.S. 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 Companies Pipeline and Diversified Energy Industry (December 2015) which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.