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

DBRS has today confirmed the ratings on the Senior Unsecured Notes, Junior Subordinated Notes and Commercial Paper of Enbridge Energy Partners, L.P. (EEP or the Partnership) at BBB, BB (high) and R-2 (middle), respectively, all with Stable trends. The rating action incorporates DBRS’s expectation that EEP’s credit ratios, which are subject to near to medium term pressure, will subsequently recover, while also recognizing its improved business risk profile following completion of its major liquids pipeline projects in 2009 and 2010.

DBRS expects EEP’s credit metrics to be pressured in the near to medium term by the expected timing lag between incurrence of cash outlays related to its Q3 2010 Line 6A and Line 6B pipeline crude oil spills (combined cost estimate of $750 million, excluding fines and penalties, of which $466 million had been spent as at June 30, 2011) prior to insurance recoveries (which DBRS estimates would reduce EEP’s expected net exposure to $100 million to $125 million in the absence of recoveries from third parties) and potential fines and penalties. DBRS estimates the net exposures noted above to equal approximately 10% of the Partnership’s adjusted EBITDA in the 12 months ending (LTM) June 30, 2011.

In addition, EEP expects to spend $1.25 billion on capex in 2011 (of which $363.1 million was spent during the first six months of 2011 (6M 2011)) and pay $0.6 billion of cash distributions. These amounts compare to $0.8 billion of cash flow in LTM June 30, 2011, with the balance to be funded by external sources.

DBRS expects EEP’s adjusted debt-to-capital ratio to remain in the low-50% range and its cash flow-to-debt, EBITDA interest coverage and EBIT interest coverage metrics (15.8%, 3.58 times and 2.48 times, respectively, for the LTM June 30, 2011) to weaken moderately in the near to medium term prior to returning to recent levels.

EEP’s business risk profile improved following completion of its major liquids pipeline projects in 2009 and 2010. Completion of the U.S. portions of the Southern Access Mainline Expansion (Southern Access) and Alberta Clipper pipelines (placed in service on April 1, 2009, and April 1, 2010, respectively) and the North Dakota Phase VI pipeline expansion (in service on January 1, 2010) improved the Partnership’s business risk profile due to the heavy weighting of capex towards low-risk (due to strong regulatory and contractual arrangements) liquids pipelines projects.

The mid-September 2010 acquisition of the Elk City Gathering and Processing System (Elk City) modestly increased EEP’s exposure to its Natural Gas segment, which has a higher business risk profile than its Liquids segment due to volume and commodity price risks, although this is partly offset by contractual and hedging arrangements. EEP typically hedges the commodity price exposure within its Natural Gas segment for the majority of its estimated commodity positions in the following year and a significant proportion over the medium term. DBRS estimates that the Liquids, Natural Gas and Marketing segments accounted for 70%, 29% and 1%, respectively, of EEP’s segment EBITDA in LTM June 30, 2011, and expects liquids pipelines to account for two-thirds to three-quarters of segment EBITDA in the medium term.

EEP enhanced its liquidity position and reduced refinancing risk during Q3 2011 with the issuance of $600 million of 4.2% senior unsecured notes (due in 2021) and $150 million of 5.5% senior unsecured notes (due in 2040), as well as $452 million of common units, combined with upsizing and extending its credit facility to $2.0 billion with maturity in September 2016. The above-noted issuances would have resulted in full availability under its $2 billion credit facility on a pro forma basis as at June 30, 2011.

The Partnership’s near term external financing needs are manageable in the context of relatively low re-financing requirements over the next few years. Gross financing needs will be directly affected by the size of EEP’s growth capex program going forward. DBRS currently expects the Partnership’s liquidity position to remain sufficient to support its needs in the event that capital markets were to return to the difficult conditions experienced during most of 2008 and the first half of 2009.

Earnings and cash flow growth are expected over the medium term, partly driven by the following sources:
(a) The $370 million U.S. portion of the Bakken Expansion Program, which commenced construction in July 2011, is expected to provide 120,000 barrels per day (b/d) of pipeline capacity (expandable to 325,000 b/d) from receipt points within North Dakota to interconnections with existing affiliated Enbridge pipelines by Q1 2013.
(b) The $175 million South Haynesville Shale Expansion is expected to provide gas gathering, treating and transmission services to expand EEP’s East Texas system.
(c) The Allison and Ajax gas processing plants in the Granite Wash region of the Anadarko Basin are expected to be in service in Q4 2011 and Q1 2013, respectively.

Incremental earnings and cash flow from these projects is expected to contribute to improved credit metrics over the medium term. EEP continues to pursue organic growth projects in both its Liquids and Natural Gas segments.

Finally, EEP’s ratings are also supported by the strong sponsorship of Enbridge Inc. (ENB, rated A (low)), which, through its wholly owned subsidiary, Enbridge Energy Company, Inc. (EECI, EEP’s general partner (GP)), acquired approximately $500 million of Class A units of EEP in December 2008, and concluded a joint funding agreement under which ENB effectively funded two-thirds of the $1.2 billion cost of the Alberta Clipper U.S. crude oil pipeline project, with the remaining one-third funded by EEP (previously 100% EEP) in July 2009.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating North American Pipeline and Diversified Energy Companies, which can be found on our website under Methodologies.