DBRS Confirms Express Pipeline Limited Partnership & Express Pipeline LLC at A (low), Stable

DBRS has today confirmed the Issuer Rating of Express Pipeline Limited Partnership & Express Pipeline LLC (collectively, Express or the Company) at A (low). The Senior Secured Notes due 2020 (Senior Notes) and the Subordinated Secured Notes due 2019 (Subordinated Notes; collectively, the Notes) have also been confirmed at A (low) and BBB (low), respectively, issued jointly and severally by Express and guaranteed by Platte Pipe Line Company (Platte). All trends are Stable. In March 2013, Spectra Energy Capital, LLC (rated BBB (high)) agreed to acquire all of the ownership interests in the Express-Platte System for $1.25 billion cash and assumption of $240 million of Express debt. DBRS is of the opinion that the ownership change is credit neutral as the ratings are supported by the combined strength of Express and Platte (collectively, Express System) without support from the parent.

The confirmations reflect DBRS’s view that Express System’s business and financial risk profile remain consistent with the current ratings. Despite the fact that firm contracts covering 40% of throughput capacity on Express expired on March 31, 2012, reducing committed capacity from 82% to 42.5%, much of the associated volumes continue to flow on Express with higher uncommitted tolls, mitigating the impact on net income and cash flow. Long-term supply/demand trends support the importance of Western Canada Sedimentary Basin crude oil shipments to the U.S. Rocky Mountains and Midwest regions. While Platte continues to rely on uncommitted volumes for throughput and revenue, relatively strong throughput on Express and rising U.S. domestic crude oil production continues to have a positive impact on Platte volumes.

The longest-dated Express shipper contract expires in October 2015. Consequently, Express System faces refinancing risk on the non-amortizing $110 million Senior Notes, whereas the Subordinated Notes are fully amortizing to a final payment at year-end 2017. DBRS estimates that, although committed volumes dropped to 42.5% in 2012, with overall pipeline capacity utilization of 76.5% in Q1 2013 and 67.8% in 2012, Express System would still be able to meet its debt service obligations given the much lower debt service requirement in future years.

Note:
All figures are in U.S. 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.