DBRS Confirms Inter Pipeline (Corridor) at “A”, R-1 (low), Stable

DBRS has today confirmed the ratings on the Senior Unsecured Debentures and Commercial Paper (CP) of Inter Pipeline (Corridor) Inc. (Corridor) at “A” and R-1 (low), respectively, both with Stable trends. The confirmations reflect successful operation of the pipeline since its expansion and credit facility refinancing.

The Corridor expansion entered commercial service on January 1, 2011, at a cost of $1.85 billion. On that date, expansion construction costs were added to the rate base and Corridor began to receive incremental revenue. Corridor’s rate base more than tripled relative to the previous level.

In early January 2011, Corridor’s debt-to-capital ratio was restored to pre-expansion levels as a result of Inter Pipeline Fund’s (IPF; concurrent confirmation at BBB (high) with a Stable trend, see separate press release) $460 million equity injection into Corridor, the newly constructed assets were added to rate base and Corridor’s increased revenue requirement under the long-term Firm Service Agreement (FSA). Corridor’s debt-to-capital ratio had significantly weakened during construction (financed entirely with debt). A stable financial profile with reasonable interest and debt service coverage ratios was restored, supported by the FSA.

In December 2011, Corridor refinanced its $1,654 million unsecured revolving credit facility (which was to mature in August 2012) with a new $1,550 million unsecured revolving credit facility with a maturity date of December 15, 2015. The facility is available to backstop Corridor’s CP program, which had an outstanding balance of $1,455 million as at March 31, 2012. Corridor’s next debt maturity is related to its $150 million senior unsecured debentures due on February 2, 2015.

Corridor owns the Corridor Pipeline System, which provides a vital link for the transportation of bitumen and diluent between two major components of the Athabasca Oil Sands Project (AOSP): the Muskeg River Mine and the Jackpine Mine, north of Fort McMurray, Alberta, and the Scotford Upgrader adjacent to Shell Canada Energy’s (Shell Canada) Scotford Refinery, near Edmonton. DBRS believes that the shippers’ large commitment to the AOSP ensures their strong incentive to make sure that Corridor is fully utilized to the extent possible.

Corridor is supported by a long-term cost-of-service FSA with quality shippers, which are also the AOSP sponsors: (a) Shell Canada provides 60% of the commitments, guaranteed by Shell Petroleum N.V., which has a private long-term rating in the AA range by DBRS. DBRS notes that the guarantee may be revoked under certain circumstances, although that is highly unlikely to occur; (b) Chevron Canada (guaranteed by its parent, Chevron Corporation (rated AA by DBRS)); and (c) Marathon Oil Canada Corporation, a subsidiary of Marathon Oil Corporation, each account for 20% of the commitments.

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.