DBRS Releases Report on Enbridge Income Fund

DBRS has today released a report on Enbridge Income Fund that provides further detail on the recent confirmation of the Issuer Rating and Senior Unsecured Long-Term Notes at BBB (high). The credit quality of Enbridge Income Fund (the Fund or the Company) remained stable following the closing of the Fund’s acquisition of crude oil storage and renewable generation assets in December 2012 (the 2012 Acquisition) from Enbridge Inc. Based on 2012 performance, as well as the recently announced equity issuance of $250 million and the upcoming completion of the $190 million Bakken expansion, the Fund’s credit metrics are expected to notably improve in 2013. The current ratings of the Fund reflect strong and predictable cash flow from a diversified portfolio of relatively low-risk assets and good cash flow interest coverage (4.82 times in 2012).

The 2012 Acquisition significantly increased the Fund’s asset base with approximately 11 million barrels of crude oil storage (all under long-term take-or-pay contracts) and 119 MW of renewable generation assets (all under long-term contracts with Ontario Power Authority (OPA), rated A (high)). Post-2012 Acquisition, over 50% of cash flow is expected to be generated from assets that are under either low-risk cost-of-service or take-or-pay contracts. The remaining cash flow is exposed to volume risk, but not commodity price risk. This cash flow mix is expected to further improve once the Bakken expansion is completed (expected in Q1 2013). The Fund’s current business risk level is adequate for the current ratings, though it is moderately weaker than the level before the first renewable asset dropdown in October 2011. The 2012 Acquisition also further reduced the Fund’s reliance on Alliance Canada for cash distributions.

The Fund’s financial profile weakened in 2012 as a result of the debt issuance in late 2012 to finance the 2012 Acquisition, which provided minimal incremental cash flow for the year. However, based on DBRS pro forma (factoring in a full-year cash flow from the 2012 Acquisition and the $250 million equity issuance in February 2013), the Fund’s credit metrics are expected to improve notably: the pro forma debt-to-capital structure would return to the expected level of 50% (55% at the end of 2012) and the pro forma cash flow-to-debt ratio would still be stronger at 14.8% (9.6% in 2012). Over the medium term, DBRS expects the Fund to take appropriate measures to improve its credit metrics by bringing the cash flow-to-debt ratio to be at or close to 20% and maintaining the debt-to-capital ratio at 50%.

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.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.