DBRS Confirms Enbridge Inc.’s Long-Term Debt at “A” and Preferred Shares at Pfd-2 (low) and Changes Trends to Stable; Commercial Paper Confirmed at R-1 (low) with Stable Trend

DBRS has today confirmed the Commercial Paper rating of Enbridge Inc. (Enbridge or the Company) at R-1 (low) with a Stable trend. Concurrently, DBRS has confirmed the Company’s Medium-Term Notes & Unsecured Debentures and Cumulative Redeemable Preferred Shares ratings at “A” and Pfd-2 (low), respectively, with the trends changed to Stable from Negative.

The confirmations reflect continued progress on Enbridge’s large multi-year capex program, which is expected to improve its business risk profile due to the heavy weighting of capex towards low-risk liquids pipelines projects.

The trend changes reflect DBRS’s belief that Enbridge has passed the point of maximum risk with respect to deterioration of its credit metrics as a result of its multi-year capex program, and is on track to substantially improve its key credit metrics from current levels during 2010. In addition, DBRS expects the Company to further improve these ratios in 2011 and maintain these levels going forward in order to remain at the current long-term debt and preferred share ratings.

Enbridge’s financial results in the nine months ending September 30, 2009 (9M 2009) are better than previously expected by DBRS, supported by earnings and cash flow from the Southern Access Mainline Expansion and Line 4 Extension projects, which were placed in service on April 1, 2009. The Company has two major pipeline projects coming on stream in mid-2010 (the Alberta Clipper Project (Alberta Clipper) and Southern Lights Diluent Import Pipeline (Southern Lights)) that will generate significant earnings and cash flow from their in-service dates and support improvement in credit metrics in 2010 and 2011. DBRS believes that Enbridge is on track to substantially improve its key credit metrics during 2010 and 2011, and to maintain these levels going forward.

The Company’s exposure to rising funding requirements as a result of a growing capex portfolio and potential cost overruns is significantly diminished relative to one year ago. While the Company’s project economics are largely protected from cost overruns, Enbridge is exposed to the potential requirement for additional funding should cost overruns occur. DBRS notes that the Company has not announced any cost overruns with respect to its major projects over the past two years. Enbridge has $9.8 billion of capital spending (including maintenance capex) in its base consolidated capex plan for 2009 to 2013, of which $6.0 billion is related to liquids pipelines (supported by long-term contracts) and $3.8 billion consists of natural gas related and other projects (including renewable energy). Of this amount, approximately $2.3 billion has been spent during 9M 2009. The Company’s latest base plan includes a net debt funding requirement of $3.0 billion (including $1.7 billion for refinancing of debt maturities) from Q4 2009 to year-end 2013, which is weighted to the Q4 2009 to year-end 2010 period. DBRS notes that the Company’s previous multi-year capex program (which totalled $12.2 billion over 2008-2012) incorporated a much larger net funding requirement of approximately $6.6 billion to be met with a significant portion of debt that was expected to have a negative impact on the Company’s credit metrics during the construction period. Enbridge has maintained adequate liquidity, with approximately $2.8 billion available under unused credit facilities on a consolidated basis at September 30, 2009. On November 6, 2009, Enbridge Pipelines Inc. (EPI, a wholly owned subsidiary of Enbridge) issued $500 million of medium-term notes, the proceeds of which were used to reduce short-term debt and increase its, and Enbridge’s consolidated, liquidity position. The Company’s near-term maturities ($450 million of direct Enbridge maturities in Q1 2010) are manageable. DBRS believes that recent improvements in capital markets conditions should allow the Company to continue to raise debt at economical interest rates.

Enbridge’s exposure to significant equity injections into its subsidiaries has also diminished relative to one year ago. Of the Company’s $9.8 billion consolidated capex program, $6.0 billion is related to liquids pipelines investments at certain of Enbridge’s subsidiaries, including EPI and Southern Lights. The remaining $3.8 billion of base consolidated capex is for natural gas, including amounts at Enbridge Gas Distribution Inc. (EGD), and renewable energy related projects. EPI, Southern Lights and EGD have direct access to external debt financing, relying on Enbridge mainly for the equity financing component. The above amounts do not include the US$2.0 billion of total capex for 2009 to 2010 (US$0.8 billion spent during 9M 2009) of Enbridge Energy Partners, L.P. (EEP or the Partnership), 27%-owned by Enbridge. While EPI and EEP are also involved in the construction of Alberta Clipper, which will require external financing through mid-2010, each will raise its own debt funding and has already received interim equity injections and funding arrangements from Enbridge since the beginning of 2008. On July 20, 2009, Enbridge and EEP concluded a joint funding agreement under which Enbridge will effectively fund two-thirds of the US$1.2 billion ($1.35 billion) cost of the U.S. segment of the Alberta Clipper crude oil pipeline project (Alberta Clipper U.S.), with one-third to be funded by EEP (previously 100% EEP). Consequently, DBRS believes that the probability that Enbridge would be called upon to inject significant further additional funds into EEP over the near- to medium-term is minimal.

Enbridge derived approximately one-quarter of its segment earnings for the last 12 months ending September 30, 2009 (LTM), from entities with no external debt (e.g., Athabasca System and Spearhead Pipeline), thereby providing a stream of unencumbered dividends to the Company. The remaining three-quarters of segment earnings are derived mostly from entities with low-risk, regulated operations that generate stable earnings, including EGD, EPI and EEP (accounting for a combined 58% of segment earnings), which also provide a steady stream of dividends to Enbridge. Overall, about 85% to 90% of Enbridge’s earnings are from low-risk, mostly regulated businesses.

Finally, DBRS expects improvement in the Company’s business risk profile following completion of the major projects as a result of the heavy weighting of capex toward liquids pipelines operations, which have a low business risk profile due to the strong regulatory environment and long-term contractual arrangements. Enbridge’s earnings from these businesses are likely to rise from 57% in 2008 to close to 70% in 2013.

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

The applicable methodology is Rating Utilities (Electric, Pipelines & Gas Distribution), which can be found on the DBRS website under Methodologies.

This is a Corporate rating.