DBRS Confirms Enbridge Energy Partners. L.P. at BBB, BB (high) and R-2 (middle), Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating of Enbridge Energy Partners, L.P. (EEP or the Partnership) at BBB and the ratings on the Partnership’s Senior Unsecured Notes, Junior Subordinated Notes and Commercial Paper (CP) at BBB, BB (high) and R-2 (middle), respectively, all with Stable trends. The rating actions incorporate DBRS’s expectation that EEP’s credit metrics, which are subject to near- to medium-term pressure, will subsequently recover and its business risk profile will continue to improve upon completion of its major liquids pipeline projects. DBRS expects EEP to restore its liquidity to levels sufficient to fully support its needs in the event of prolonged difficult capital market conditions. Finally, EEP’s ratings are also supported by the sponsorship of Enbridge Inc. (ENB, rated BBB (high) with a Stable trend by DBRS).

EEP’s financial profile and credit metrics weakened in the last 12 months (LTM) ending March 31, 2016, compared with LTM ending March 31, 2015, mainly due to (1) the higher debt level (and related interest expense) as a result of funding the large ongoing capex program and (2) cash distribution increases in excess of incremental cash flow generation more than offsetting the benefits of incremental cash flow from projects recently placed into service. DBRS expects EEP’s credit metrics to be pressured in the near to medium term (although remaining consistent with the current ratings) due to its large growth capex program and high distribution payout ratio. As a master limited partnership, EEP pays out most of its cash flow to unitholders, with growth capex and acquisitions requiring external funding (debt and/or units), including an equity component to maintain reasonable credit metrics.

EEP’s business risk profile should continue to improve upon completion of its major low-risk (due to strong regulatory and contractual arrangements) liquids pipeline projects through 2019. EEP’s exposure to its higher-risk (due to volume and commodity price risks) Natural Gas segment (subject of a recently announced strategic alternatives review given poor U.S. natural gas industry conditions) has declined significantly, as the proportion of EEP’s EBITDA related to Natural Gas fell to 10% of the total in the LTM ending March 31, 2016, from 30% in 2011. Over that period, Natural Gas EBITDA dropped by 49%.

DBRS expects EEP to restore its liquidity to levels sufficient to fully support its needs in the event of prolonged difficult capital market conditions. The Partnership’s external financing needs are significant given forecast capex of $0.9 billion (net) and debt maturities of $0.3 billion in 2016 compared with approximately $0.65 billion of availability under EEP’s direct credit facilities at March 31, 2016. In 2017, EEP’s external funding needs will likely rise in the event that the Sandpiper and Line 3 Replacement liquids pipeline projects obtain regulatory and other approvals to commence construction (EEP’s share of the combined growth capex is $1.9 billion, mainly in 2017 and 2018). There are currently no debt maturities in 2017 and $500 million of combined EEP and Enbridge Energy Limited Partnership debt maturities in 2018.

Finally, EEP benefits from the sponsorship of ENB, which, through its wholly owned subsidiary, Enbridge Energy Company, Inc. (EECI, EEP’s general partner), has taken ongoing action to improve EEP’s liquidity and financing needs. On July 30, 2015, the payment deferral for distributions accruing on the preferred units issued in 2013 by EEP to EECI ($90 million per year) was extended by three years to June 30, 2018. EECI also agreed to temporarily forego distributions related to the Eastern Access and U.S. Mainline expansion projects ($129 million in the first half of 2015) commencing in Q2 2015 through Q1 2016, although the effectiveness period has now ended.

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 methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (December 2015), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2016), DBRS Criteria: Financial Ratio Definitions and Accounting Adjustments – Non-Financial Companies (April 2016) and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (January 2016), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.