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

DBRS has today confirmed the Issuer Rating of Trans-Northern Pipelines Inc. (TNPI or the Company) and the rating of its Senior Unsecured Notes at A (low), with Stable trends. The confirmation reflects the following factors:

(1) Ship-or-pay contracts have covered 50% of TNPI’s capacity since 2005, 40% of which are with its one-third owner Suncor Energy Inc. (Suncor, rated A (low)) and 10% with Ultramar Limited (Ultramar, wholly owned by Valero Energy Corporation, not rated by DBRS), and provide sufficient stable cash flow to meet annual principal and interest payments for the Notes. In addition to the ship-or-pay contracts, the balance of capacity is dedicated to un-contracted service for its two one-third owners, Imperial Oil Limited (Imperial, rated AA (high)) and Shell Canada Limited (Shell Canada, wholly owned by Royal Dutch Shell, not rated by DBRS).

(2) TNPI is a strategic asset for its owners, who provide strong sponsorship and integration. TNPI forms an integral part of the transportation system for its owners who need to deliver their products to the southern Ontario refined products market. The strong investment-grade owner-shippers can provide support to TNPI, if needed.

(3) TNPI offers the most economic tolls and efficient shipping option from Montréal to the Toronto, Ottawa and southern Ontario refined products markets. 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 cash flows and debt service coverage to gradually improve as stable cash flows support payment of interest and principal debt repayments over time. TNPI’s short-term liquidity requirement is supported by a $25 million revolving credit facility, of which approximately $10 million was drawn as of December 31, 2012.

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.

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.