DBRS Confirms Alliance Pipeline L.P. at A (low)

DBRS has today confirmed the Senior Secured Notes of Alliance Pipeline L.P. (Alliance USA or the Partnership) at A (low) with a Stable trend. Alliance USA is the U.S. portion of the Alliance Pipeline System (collectively, Alliance), which includes Alliance Pipeline Limited Partnership (Alliance Canada – see separate press release), the Canadian portion.

The rating is based on strong and predictable cash flow from take-or-pay shipper contracts (which end December 1, 2015) to service the amortization amount of the debt and interest throughout the contact term. Shipper contacts cover 100% of Alliance’s pipeline base capacity and are with strong credit profile shippers, with approximately 90% of the shippers having investment-grade ratings. Although the renewal of new contracts beyond 2015 remains uncertain and future competition or economic conditions could force Alliance to realize lower earnings and cash flow than the current contracts (currently not expected), this risk is mitigated by: (1) the Alliance pipeline system (the System) remains relatively competitive from a cost perspective, which is expected to enhance its ability to obtain new contracts; (2) the System could run at 20% over its base capacity, which could help to generate additional cash flow; and (3) a considerable amount of debt will be retired by the end of the contracts.

Alliance USA’s credit metrics could be temporarily impacted by significantly higher capex in 2012 ($100 million, DBRS estimate), as Alliance is seeking to expand its pipeline system (particularly in the U.S. portion with the Tioga Lateral pipeline, 120 mmcf/day) to tap into new resources of natural gas and natural gas liquids in the Bakken area. DBRS expects Alliance USA to finance its expansion in a prudent manner to maintain its leverage within DBRS’s A (low) rating range.

Although DBRS assesses the credit quality of Alliance USA on a standalone basis, due to cross-default provisions between Alliance Canada and Alliance USA, DBRS believes that a change in the creditworthiness of Alliance Canada could impact the credit profile of Alliance USA and vice versa.

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

The applicable methodology is Rating North American Pipeline and Diversified Energy Companies (May 2011), which can be found on our website under Methodologies.