DBRS Confirms Veresen Inc. at BBB (high) and Pfd-3 (high), Stable Trend

DBRS has today confirmed the Issuer Rating and Senior Unsecured Notes rating of Veresen Inc. (Veresen or the Company) at BBB (high) and the Preferred Shares at Pfd-3 (high), all with Stable trends. The confirmation reflects the Company’s strong business risk profile supported by (1) a diverse portfolio of energy infrastructure assets, and (2) stable cash flows underpinned by firm ship-or-pay contracts in the pipeline business and long-term contracts in the power and midstream operations, with strong counterparties. The Company has the potential to further grow and diversify its business through liquefied natural gas (LNG) exports from Jordan Cove Energy Project (Jordan Cove, or the Project) by 2019, subject to Company securing FERC approval and long-term tolling agreements with customers. Veresen’s financial metrics are consistent with current rating category.

The stable trend reflects DBRS view that Veresen’s business and financial risk profile will remain consistent with current ratings in the medium term despite a majority of firm shipper contracts on Alliance pipeline (Alliance: rated A (low); 50% owned by Veresen, 52% of 2013 EBITDA) expiring in November 2015. DBRS expects much of the potential associated uncommitted capacity on the pipeline will continue to be utilized, mitigating impact on earnings and cash flows, as Alliance is a liquids-rich gas pipeline connecting the growing supply basins in Western Canada and North Dakota, including the Montney, Duverney, and Bakken, to the Aux Sable liquids extraction and fractionation facility near Chicago (42.7% owned by Veresen). This provides market connectivity for producers/shippers to access the rich gas premium markets in the Midwestern United States. DBRS notes that there could be some increasing margin pressure as Alliance offers lower tolls to induce customers to re-contract.

DBRS notes that Jordan Cove is significant and transformative, as it adds growth and diversification to Veresen’s business, and expects that its success will have a positive impact on the Company’s business risk profile. DBRS expects the Company to fund the Jordan Cove development costs in a prudent manner to maintain its balance sheet for the current rating, as evidenced by the recent funding of initial costs with equity.

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 methodologies are Rating Pipeline and Diversified Energy Companies (January 2014) and Preferred Shares and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions) (December 2013) which can be found on our website under Methodologies.

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