DBRS Confirms Enbridge Inc. at A (low), R-1 (low) and Pfd-2 (low), Stable Trends

DBRS has today confirmed the Issuer Rating of Enbridge Inc. (ENB or the Company) at A (low) and ratings on ENB’s Medium-Term Notes & Unsecured Debentures, Commercial Paper and Cumulative Redeemable Preferred Shares ratings at A (low), R-1 (low) and Pfd-2 (low), respectively, all with Stable trends. The ratings reflect (1) a relatively strong business risk profile, (2) pressure on ENB’s near-to-medium-term credit metrics and (3) results under the ten-year Competitive Tolling Settlement (CTS), effective July 1, 2011.

(1) ENB’s low-risk, mostly regulated operations provide roughly 85% to 90% of its earnings. ENB derived about one-quarter of its segment earnings for the last 12 months (LTM) ending June 30, 2013, from entities with no external debt. The remaining three-quarters of segment earnings were derived mostly from entities with low-risk, mostly regulated operations that generate stable earnings, including Enbridge Pipelines Inc. (EPI), Enbridge Gas Distribution Inc. (EGD), Enbridge Income Fund (EIF) and Enbridge Energy Partners, L.P. (EEP, 21.0% owned by ENB), accounting for a combined 60% of segment earnings.

(2) DBRS expects ENB’s credit metrics to be pressured during the early years of its planned $36 billion capex program from 2013 to 2017, due to a significant debt financing component related to large free cash flow deficits. However, DBRS expects that any such potential weakness would be shallower than experienced in 2008-2009, as a result of the shorter average construction period and lower average construction costs for the current portfolio of projects, which are relatively well spread out in terms of expected dates of completion.

(3) The CTS provides for a joint tariff for volumes shipped on both the Canadian (Enbridge System or Mainline) and U.S. (Lakehead) portions of the Enbridge/Lakehead crude oil pipeline system. Under the International Joint Tariff (IJT) agreement, any shortfall in toll revenues (e.g., as a result of lower throughput) under the CTS for Lakehead could potentially reduce the toll revenues available to Mainline. While Mainline earnings have benefited to date from the CTS provisions, the Mainline assumed increased business risk to EPI, compared with the previous cost-of-service agreements, as evidenced in much lower Q2 2013 earnings.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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