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, 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 USA’s pipeline base capacity and are with strong credit profile shippers, with approximately 90% of the shippers having investment-grade ratings. Under the shipper contracts (including the nine-year Pecan Pipeline transportation contract that expires in January 2020), Alliance USA has no exposure to volume risk, is allowed to pass through prudently incurred operating costs, and earns a reasonable return on its investment base. These contracts have consistently generated strong cash flow, which has been more than sufficient to service interest and amortized debt payment, with a debt service coverage ratio (DSCR) of over 2.0 times (x) in 2011 and 2012.

Alliance USA’s credit metrics could be temporarily affected by significantly higher capex in 2013, as the Partnership is constructing the 106.5 MMcf/d (million cubic feet/day) Tioga Lateral Project ($170 million) to tap into new resources of natural gas and natural gas liquids in the Bakken area. The project construction commenced in 2012 and is expected to be in service in July 2013. 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 affect the credit profile of Alliance USA, and vice versa.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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.

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