DBRS Confirms Trans-Northern Pipelines Inc. at A (low) with Stable Trend

DBRS has today confirmed the rating on the Senior Unsecured Notes (the Notes) issued by Trans-Northern Pipelines Inc. (TNPI or the Company) at A (low) with a Stable trend. The confirmation reflects the following factors:

(1) The primary term of long-term firm ship-or-pay contracts covering 50% of TNPI’s capacity (40% with its one-third owner Suncor Energy Inc. (Suncor, rated A (low) by DBRS)) and 10% with Ultramar Limited (Ultramar, not rated by DBRS), provides sufficient revenue to meet principal ($10.5 million annually) and interest payments for the Notes, with the $40.5 million (30%) balance due in March 2015.

(2) TNPI offers the most economic tolls and the most reliable shipment option for the Montréal to Toronto, Ottawa and southern Ontario refined products markets, supporting stability of earnings and cash flow. This position is supported by the long-term contracts noted above, with the balance mostly dedicated to un-contracted service for its two other one-third owners, Imperial Oil Limited (Imperial, rated AA (high) by DBRS) and Shell Canada Limited (Shell Canada, wholly owned by Royal Dutch Shell, not rated by DBRS). Suncor also ships un-contracted volumes from its Sarnia refinery through the Sun-Canadian Pipeline to a TNPI junction point near Pearson International Airport in Toronto. These volumes are then injected into the TNPI pipeline lateral for delivery to the airport. The pipeline supports Suncor’s servicing of its primary markets in southern Ontario through its Montréal refinery and Ultramar’s coverage of the Toronto market.

(3) Refined products demand in southern Ontario is supported by sufficient supplies. Incremental supplies are available from Québec-based refineries, supplemented by imports from Europe. DBRS estimates that capacity utilization on the various pipeline segments has remained in the 75% to 80% range since the completion of the expansion and reversal project in March 2005.

DBRS expects the Company’s credit metrics, which are consistent with the current rating, to gradually improve as the project debt amortizes over time. With regards to liquidity, TNPI has a $25 million revolving credit facility available for short-term debt requirements. DBRS expects the facility to be extended prior to its July 2012 maturity. Approximately $11 million was drawn as of December 31, 2011.

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 our website under Methodologies.