Morningstar DBRS Confirms Credit Ratings on Westcoast Energy at A (low), Stable

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Notes credit rating of Westcoast Energy Inc. (Westcoast or the Company) at A (low), both with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations reflect the regulated cost-of-service (COS) nature of the Company's natural gas pipeline operations and the benefits of owning a material investment in a strong, regulated natural gas distribution franchise in Enbridge Gas Inc (EGI; rated "A" with a Stable trend by Morningstar DBRS). The credit ratings are underpinned by the Company's standalone credit metrics for Westcoast Energy's pipeline operations, excluding their equity ownership of Enbridge Gas Inc. (EGI). Morningstar DBRS assesses the Company's liquidity position as adequate.

The regulatory environment at B.C. Pipeline and M&NP Canada remained stable in 2024. The B.C. Pipeline continues to operate under the Canada Energy Regulator (CER) approved five-year settlement agreement through 2026 while M&NP Canada's 2024-25 settlement agreement was approved by the CER in February 2024. Under the Phase 2 Settlement proposal, EGI and parties agreed to a framework that will provide for the recovery of material unexpected events and discrete incremental capital investments beyond those that can be funded through base rates. The Ontario Energy Board (OEB) subsequently approved the framework. In Morningstar DBRS' opinion, EGI's rate base will continue to grow steadily and, despite some prior adverse decisions from the OEB with respect to EGI's base rate proposals, its financial metrics will be manageable over the medium term.

Medium to long term growth will be supported by two major growth projects: the $1.2 billion T-North Expansion and the $4.0 billion T-South Expansion, which will benefit from the expected growth of liquefied natural gas exports from the west coast of Canada to Asian markets. The T-North Expansion received regulatory approval from the CER in December 2024 and is expected to be placed into service in 2026. Westcoast has filed the regulatory application for the T-South Expansion in May 2024 with this project expected to be placed into service in 2028. Morningstar DBRS expects funding for these significant expansion projects to be provided by Westcoast's parent, Enbridge Inc. (rated A (low) with a Stable trend by Morningstar DBRS).

CREDIT RATING DRIVERS
A positive credit rating action is unlikely given Westcoast's relatively stable business and financial risk profiles. Although unlikely, Morningstar DBRS could downgrade the credit rating because of adverse regulatory changes or if the Company's cash flow-to-debt ratio weakens below 10% on a sustained basis.

EARNINGS OUTLOOK
In the near term, Morningstar DBRS expects Westcoast's standalone earnings to be stable as the Company generates most of its operating earnings from the B.C. Pipeline operating under a stable COS framework.

FINANCIAL OUTLOOK
Morningstar DBRS expects Westcoast's standalone operating cash flow to be relatively stable as the Company generates most of its operating cash flow from the B.C. Pipeline operating under a COS framework. The impact from growth projects on operating cash flow is expected to be fully realized from 2027.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): AL/BBBH
Westcoast's CBRA of AL/BBBH reflects the Company's strong contractual and regulatory position, adequate access to energy supply, strong end user demand, and diversification by region. The CBRA also factors in the moderately competitive environment across the Company's core pipelines operations. The CBRA also incorporates, through a positive business risk assessment adjustment, the benefit of Westcoast's 46% equity investment in EGI.

Comprehensive Financial Risk Assessment (CFRA): A/AL
Westcoast's CFRA of A/AL reflects strong financial metrics for the current credit rating category and Morningstar DBRS' expectation that the Company's financial profile will remain stable over the near and medium term despite increased capital expenditures to support growth. Morningstar DBRS expects credit metrics to remain supportive of the current credit rating with projected cash flow to debt of approximately 12%. The CFRA also incorporates the benefit of Westcoast's 46% equity investment in EGI through a positive financial risk assessment adjustment.

Morningstar DBRS expects debt levels to increase but remain manageable over the medium term as Westcoast invests in its T-North and T-South expansion projects. Any cash shortfalls will be funded by Westcoast through a demand loan from Enbridge throughout the construction period. Morningstar DBRS assesses the Company's financial risk profile as being supportive of the credit ratings.

Intrinsic Assessment (IA): AL
The IA of AL is within the Intrinsic Assessment Range and is based on the CBRA and CFRA and is also taking into consideration the current credit rating trend and peer comparisons, among other factors.

Additional Considerations: None
Westcoast's credit ratings include no further negative or positive adjustments because of additional considerations.

Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/454096.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology: Global Methodology for Rating Companies in the Oil & Gas, Oilfield Services, and Pipeline and Midstream Energy Industries (May 6, 2025), https://dbrs.morningstar.com/research/453396

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024),
https://dbrs.morningstar.com/research/437781
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025),
https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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