Morningstar DBRS Confirms Coastal GasLink Pipeline Limited Partnership Credit Ratings at A (low) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the credit ratings of Coastal GasLink Pipeline Limited Partnership (CGL or the Issuer) and the credit ratings of the Senior Bonds at A (low). All trends are Stable. The confirmation of the credit ratings is pursuant to the performance of the project over the first year of operations, as commissioning gas to LNG Canada (LNGC), the project's offtaker, has begun to flow, as well as satisfactory progression of the Cedar expansion project. The debt service coverage ratio (DSCR) of 1.93 times (x) as of March 31, 2025 (the latest available results) meets credit rating-case expectations.

KEY CREDIT RATING CONSIDERATIONS
Subsequent to successfully issuing $7.15 billion in Senior Bonds in June 2024 to refinance its construction loan, the Issuer reached an agreement (Phase 1 Agreement) with LNGC and its five joint venture partners in November 2024 to allow tolling of the CGL pipeline system to begin, while LNGC progressed to reaching its substantial completion and in-service date, currently anticipated by the middle of 2025. CGL is currently flowing commissioning gas to LNGC on an as-needed basis.

In parallel, CGL continues to progress on the Cedar expansion portion of the pipeline, which reached Final Investment Decision (FID) in July 2024. The expansion consists of adding an additional compressor station at Mount Bracey along the pipeline route as well as an interconnection at the LNGC facility to a floating LNG facility being developed by Cedar LNG Partners LP (Cedar LNG), a partnership between Pembina Pipeline Corporation and the Haisla Nation. Ground conditions and heavy rains in 2024 and early 2025 caused some minor delays as the expansion has begun; however, CGL has recovered most of the schedule over 2025 to date. Long lead items and other aspects of the expansion continue to be on track. Significant cushions built into the expansion schedule serve to mitigate construction risk associated with the expansion.

The Issuer is a single-purpose, limited partnership established to develop and operate the Coastal GasLink Pipeline System and related facilities (the Pipeline or the Project). Series A to I of the Senior Notes are interest only with staggered maturity dates, whereas Series J and K will amortize to mature by 2049. Refinance of the Cedar construction loan is explicitly built into the refinancing plan through two planned additional issuances in the latter part of the decade. Although the credit rating is currently being assigned to the initial series of Notes, the credit rating is based on an assessment of the credit and default risk of the entire proposed refinance program, including the revolving bank facility intended to be put into place and drawn upon to pay down the Senior Notes as they mature over a 25-year period. Bond issuance amounts in excess of this required to refinance both loans are subject to a rating agency confirmation (RAC), reducing the risk of over-leveraging the Project. Interest-rate risk, if rates rise at the time of refinancing the Cedar construction loan, can be potentially mitigated if swap hedge breakage payments from the Cedar loan are available, while risk of mark-to-market exposure of these hedge arrangements if interest rates trend down are addressed by requiring counterparties to post financial security to cover these risks.

CREDIT RATING DRIVERS
A credit ratings upgrade is unlikely given the overall complexity of the transaction, particularly the uncertainties around the Cedar expansion, the proposed refinancing structure, and current lack of operating history related to ramp-up and commissioning risks of Phase 1.

A negative credit rating action may be triggered by a material increase to any risk factor outlined, including material underperformance in either Phase 1 operations or execution of the Cedar expansion, or interest rate risk during either Cedar refinance period or paydown of the refinance debt and debt smoothing facility.

FINANCIAL OUTLOOK
The project is expected to generate stable cash flows from its Cost of Service, take-or-pay arrangement backed by creditworthy Anchor Shippers. The ability to pass through all operating and maintenance costs reduces the project's exposure to sustained cost increases, although net cash flow variability in any one year may still occur from operating cost overruns (which are recoverable in the following year). Potential exposure to Anchor Shipper credit risk is mitigated due to provisions in the tolling agreements, which ensure the full amounts are paid even where a Shipper is in default.

LNGC has begun to make toll revenue payments pursuant to the Phase 1 Agreement, even though the LNGC facility has not yet reached its in-service date. Revenue from the Cedar expansion is expected to begin in the latter half of the decade. Once in operation with both loans fully refinanced, the refinance debt plan is structured to pay down the refinance bonds via a Debt Smoothing Facility (DSF) that will be drawn to pay maturing bullet bonds.

Both the DSF and the amortizing bonds will be paid down using operating cash flow, and are structured in the Sponsor case to achieve a target flat DSCR of 1.21 x. Rating case assumptions result in a minimum/average DCSR of 1.21x/1.25x because of the lower amount of debt raised to restrict the amount only to that needed to refinance the loans, combined with interest rate buffers added. The current DSCR as of March 31, 2025, is 1.93x, although Morningstar DBRS notes that this coverage ratio reflects a quarter only and will normalize over the remainder of the year.

CREDIT RATING RATIONALE
The A (low) credit ratings are underpinned by (1) the expected highly predictable cash flows under the long-term revenue contracts, (2) the project's essentiality, (3) high credit quality counterparties, and (4) expected straightforward and routine operations undertaken by a qualified operator/Sponsor. The credit ratings are constrained by the (1) construction risks around the Cedar expansion, (2) complexity and exposure to interest rate risk in the refinancing structure, (3) potential uncertainty around unresolved land claims with Indigenous groups, and (4) residual ramp-up risk.

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 (May 16, 2025) https://dbrs.morningstar.com/research/454196

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
-- In the analysis of Coastal GasLink Pipeline Limited Partnership, the Rating Driver factors listed in the methodology are considered in the order of importance.

(B) Weighting of FRA Factors
-- In the analysis of Coastal GasLink Pipeline Limited Partnership, the following FRA factor listed in the methodology was considered more important :DSCR (the only factor)

(C) Weighting of the BRA and the FRA
-- In the analysis of Coastal GasLink Pipeline Limited Partnership, the FRA carries greater weight than the BRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Project Finance (December 10, 2024)
https://dbrs.morningstar.com/research/444393

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 methodology has also been applied:

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

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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