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

DBRS has today confirmed the Issuer Rating of Westcoast Energy Inc. (Westcoast or the Company) at A (low), along with the ratings of its Unsecured Debentures, Commercial Paper and First Preferred Shares ratings at A (low), R-1 (low) and Pfd-2 (low), respectively, all with Stable trends. The rating confirmations reflect Westcoast’s strong business risk profile, underpinned by low-risk, fee-based, mostly regulated operations generating strong and growing earnings and cash flows. The Company’s credit metrics have remained reasonable for the current rating category.

Westcoast’s business is well-diversified, with its transmission and processing (T&P) segment accounting for 56% and its distribution segment accounting for 46% of EBITDA (LTM March 31, 2014). Nearly 90% of T&P earnings benefit from firm take-or-pay contracts in its gathering and processing (G&P) operations and full cost of service (COS)-based regulated rate settlements in its pipelines business. A major portion of Westcoast’s distribution business is rate-regulated and generates stable cash flows. Westcoast’s NGL marketing operations (Empress; 7% of EBITDA) within the T&P segment are sensitive to commodity prices.

Westcoast is expected to continue its significant expansion projects in the medium term to take advantage of the strong exploration and unconventional drilling activity in Western Canada. The Company invested $946 million in capex in 2013, including $528 million of expansion capital, with an additional $950 million in capex planned for 2014. Increasing earnings and cash flow from expansions placed into service to date have resulted in relatively strong credit ratios. Although a major portion of capital spending is expected to be funded through the Company’s operating cash flow, incremental financing is likely from increased long-term debt issuance. While the capex program is substantial, spending is allocated to low-risk gathering and processing (G&P) and pipeline segments, and underpinned by long-term contractual commitments, which will continue to support Westcoast’s relatively strong business risk profile. DBRS expects the Company to fund its capital expenditure prudently and maintain credit metrics in line with the current rating category.

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

The applicable methodologies are Rating Pipeline and Diversified Energy Companies (January 2014), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2014), Preferred Share and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions) (December 2013), which can all be found on our website under Methodologies.

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.