DBRS Assigns Pfd-3 (high) Provisional Rating to Veresen Inc.’s New Issue, Places Under Review with Developing Implications

DBRS has today assigned a provisional rating of Pfd-3 (high) to the Preferred Shares to be issued by Veresen Inc. (Veresen or the Company). Veresen plans to issue $150 million of cumulative redeemable preferred shares, Series A (the Series A Preferred Shares). Veresen’s ratings are currently Under Review with Developing Implications, and the review will include this provisional rating, pending the successful completion of the issuance.

The proceeds from the Preferred Shares issuance will be allocated toward the recently announced Cutbank Ridge (British Columbia) midstream asset acquisition, for total consideration of approximately $920 million from Encana Corporation (rated A (low) with a Negative trend). The acquisition is expected to be more than 50% equity financed (including approximately $350 million in common equity through a subscription-receipt bought-deal offering settled on December 16, 2011), with the remainder initially financed by drawing on Veresen’s bank facilities. DBRS is comfortable with the Company’s funding strategy, which includes appropriate measures to maintain a reasonable financial profile while executing its growth strategy. As a result, concurrent with the successful issuance of the Series A Preferred Shares, DBRS expects to remove Veresen’s Senior Unsecured Notes and Preferred Shares ratings from Under Review with Developing Implication and confirm them with a Stable trend.

The Series A Preferred Shares will have an annual dividend rate of 4.40%, payable quarterly, for the initial fixed-term period ending September 30, 2017. The dividend rate will reset on September 30, 2017, and every five years thereafter at a rate equal to the sum of the five-year Government of Canada bond yield plus 2.92%. The Series A Preferred Shares are redeemable by Veresen on September 30, 2017, and on September 30 every five years thereafter. The holders of the Series A Preferred Shares will have the right, at their option, to convert their shares into cumulative redeemable preferred shares, Series B (Series B Preferred Shares), subject to certain conditions, on September 30, 2017, and on September 30 every five years thereafter. Holders of the Series B Preferred Shares will be entitled to receive cumulative quarterly dividends at a rate equal to the sum of the 90-day Government of Canada Treasury bill yield plus 2.92%.

The Series A Preferred Shares are to be issued pursuant to a prospectus supplement that will be filed with the securities regulatory authority in each of the provinces of Canada under Veresen’s short-form base shelf prospectus dated August 22, 2011. The Series A Preferred Shares will rank equally with any future preferred shares issued by the Company. Net proceeds from the offering will be used to partially fund the Cutbank Ridge transaction, to reduce existing indebtedness and for general corporate purposes.

The finalization of the rating is contingent upon receipt of final documents conforming to information already received.

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

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