DBRS Updates Report on Trans-Northern Pipelines Inc.

DBRS has today released an updated report on Trans-Northern Pipelines Inc. (TNPI or the Company). The current A (low) rating is supported by TNPI’s very strong financial risk profile, which partially mitigates the slightly higher business risk profile for the current rating category.

TNPI’s overall business risk profile is BBB (high), which is below the industry risk rating of “A.” The following primary factors help support the business risk rating: (1) Regulatory/Contractual BBB: TNPI is regulated by the National Energy Board (NEB) under the incentive tolling methodology, and ship-or-pay contracts cover over 50% of the Company’s pipeline capacity until March 2015. However, TNPI has considerable exposure to uncommitted throughput, representing approximately 50% of the capacity, which creates the potential for future earnings and cash flow volatility. (2) Supply/Demand Considerations and Customers/Shippers “A”: TNPI has a strong franchise servicing southern Ontario. DBRS estimates that capacity utilization on the various pipeline segments has remained in the 75% to 80% range, which demonstrates demand for products shipped. (3) Competitive Environment “A”: TNPI offers the most economic tolls and efficient shipping option from Montréal to the Toronto, Ottawa and southern Ontario refined products markets. It is also the only pipeline shipping products from Montréal to Toronto, Belleville, Kingston, Maitland and Ottawa. 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. (4) Product and Geographic Diversification BBB: TNPI is a single asset pipeline serving the southern Ontario and Montréal markets, which exposes the Company to regional demand imbalances.

TNPI’s rating is one notch above its business risk rating, benefiting from its low financial risk profile, which is in the “AA” range. DBRS expects the financial risk profile to remain strong until ship-or-pay contracts expire in 2015, and the Company will revisit its financing strategy in the near future, which could impact its future financial risk rating.

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

The applicable methodology is Rating Pipeline and Diversified Energy Companies, which can be found on our website under Methodologies.