DBRS Confirms Enbridge Income Fund Rating at BBB (high), Stable

DBRS has today confirmed the Senior Unsecured Long-Term Notes rating of Enbridge Income Fund (the Fund) at BBB (high) with a Stable trend. The confirmation reflects strong cash distributions from Alliance Canada (50% owned) and Saskatchewan Pipeline System (SPS; 100% owned) and reasonable pro forma credit metrics (albeit weaker due to higher debt levels) as a result of the acquisition of renewable energy assets in Ontario (generating capacity of 369 megawatts (MW)) from Enbridge Inc. (rated A (low)).

Cash flow available for distribution at Alliance Canada has been relatively predictable, providing strong distributions to the Fund to service its debt. Alliance Canada benefits from Alliance Pipeline System’s (Alliance) competitive pipeline system and take-or-pay contracts with creditworthy shippers. DBRS notes that Alliance’s earnings have been declining due to a depreciating rate base and that there are uncertainties related to the renewal of shipper contracts when they expire on December 1, 2015.

The Fund benefits from increased cash distributions from SPS (crude oil pipelines), underpinned by strong earnings growth in the past few years due to system expansion. SPS’s cash flow is expected to grow further when the Bakken crude oil pipeline expansion project (the Bakken Expansion) commences operations (projected for Q1 2013). Most of SPS’s cash flow is available for distribution to the Fund as it has modest maintenance capex.

The Fund’s business risk increased modestly following the acquisition of 369 MW of renewable generation assets (the Sarnia Solar Project, the Talbot Wind Project and the Ontario Wind Project) for $1.24 billion (the Acquisition). The Acquisition increased cash flow volatility associated with electricity production volumes due to weather conditions. However, this risk is partially offset by (1) long-term contractual arrangements with Ontario Power Authority (rated A (high)) and (2) improved diversification of cash flow to the Fund. Although the Fund’s financial profile weakened modestly, DBRS expects these ratios to improve when the Bakken Expansion (145,000 barrels per day) commences its services in Q1 2013. DBRS notes that further expansion in the power generation sector could affect the Fund’s business risk profile and have a negative impact on the Fund’s current rating.

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.