DBRS Confirms Rating of Alliance Pipeline L.P. at A (low), Stable

DBRS has today confirmed the Senior Secured Notes rating of Alliance Pipeline L.P. (Alliance USA, Alliance, or the Partnership) at A (low) with a Stable trend. The confirmation reflects the Partnership’s stable business risk profile supported by take-or-pay transportation contracts covering 100% of base capacity, and strong credit metrics that have remained consistent with the current rating category.

Alliance USA faces re-contracting risk as most of its existing transportation contracts expire in December 2015, prior to a substantial amount of debt maturing during 2016-2025. Although no new transportation contracts have been announced, DBRS expects much of the potential uncommitted capacity on the pipeline to be utilized, mitigating the impact on earnings and cash flows, as Alliance operates a liquids-rich gas pipeline connecting the growing Montney, Duvernay and Bakken rich gas supply basins to the Aux Sable liquids extraction and fractionation facility near Chicago. This provides producers/shippers market connectivity to access the rich gas premium markets in the Midwestern United States, resulting in increased netbacks without capital deployment for deep cut gas or extraction and fractionation plants. Alliance Canada filed its new post-2015 service offering with the National Energy Board in May 2014. Under the new service offering, effective December 2015, firm delivery service from Alberta to the U.S. border is reduced from $0.26/thousand cubic feet mcf to $0.23/mcf, and the new hydrocarbon dew point (HCDP) specification is revised to -5 degrees Celsius from -10 degrees Celsius to accommodate higher heat content and allow for higher liquid content gas to be transported on the pipeline. Similarly, Alliance USA is expected to apply to the Federal Energy Regulatory Commission in 2015 for regulatory approval to revise rates and change HCDP gas quality tariff specification to 23 degrees Fahrenheit from 14 degrees Fahrenheit. DBRS expects that there could be increasing margin pressure as Alliance offers lower tolls to induce customers to re-contract. This risk could be moderated as higher margin liquid rich gas volumes (versus dry gas) flowing on Alliance continue to rise, and the pipeline offers competitive and multiple delivery options with short-haul and long-haul services.

Alliance USA continues to maintain a strong credit profile supported by take-or-pay transportation contracts, with approximately 85% of the shippers having investment-grade ratings. Alliance has a modest capex program and near-term debt maturities are manageable. Alliance has consistently generated strong cash flow sufficient to service its debt. DBRS expects the Partnership to maintain credit metrics in line with current ratings beyond 2015.

Notes:
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 Pipeline and Diversified Energy Companies (January 2014), which can be found on our website under Methodologies.

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