DBRS Places Veresen Inc. Under Review with Negative Implications Following Ruby Pipeline Acquisition Announcement

DBRS has today placed Veresen Inc.�'s (Veresen or the Company) Issuer Rating and Senior Unsecured Notes rating of BBB (high) and its Preferred Shares rating of Pfd-3 (high) Under Review with Negative Implications. If the planned acquisition of 50% convertible preferred interest in Ruby pipeline system (Ruby) proceeds as expected, Veresen�'s overall business risk profile is expected to weaken and its financial risk profile is expected to deteriorate modestly. As a result, Veresen�'s ratings will likely be downgraded by one notch following the completion of the acquisition.

This rating action follows the announcement that the Company has entered into an agreement with Global Infrastructure Partners (GIP) to acquire GIP�'s 50% convertible preferred interest in Ruby for USD 1.425 billion (the Acquisition). The Acquisition will be made through a wholly-owned subsidiary of Veresen. The transaction is expected to close by Q4 2014, subject to normal closing conditions and regulatory approval from the Committee on Foreign Investment in the United States. Ruby is a 683 mile interstate natural gas pipeline providing 1.5 billion cubic feet per day (bcf/d) of natural gas delivery capacity from the Opal Hub in Wyoming to the Malin Hub in Oregon, on the California border. The pipeline was placed in service in July 2011. 71% of Ruby�'s capacity is supported by take or pay contracts with a weighted-average remaining life of approximately nine years. 90% of contracted volumes are with investment-grade counterparties.

In its review, DBRS focused on the impact of the Acquisition on Veresen�'s (1) business risk profile and (2) financial risk profile.

(1) Business Risk Profile - Negative

Based on a preliminary review, DBRS views the Acquisition as negative with respect to Veresen�'s business risk profile. DBRS notes that the Acquisition could add a potential layer of uncertainty around re-contracting to the Company�'s business risk profile. The average physical throughput on Ruby in the past three years indicates that only 55% of the pipeline capacity is utilized, largely reflecting the weak natural gas pricing environment and competitive landscape. DBRS is of the opinion that Ruby is exposed to re-contracting risk when the majority of contracts (approximately 65%) expire in 2021, as the pipeline�'s capacity may not be re-contracted at current tolls, volumes or duration. The growth in natural gas demand in the regions served by Ruby - Northern California and the Pacific Northwest markets - is expected to be moderate in the next five to seven years. From a supply-push perspective, strong production growth in the U.S. Northeast from the Marcellus and Utica basins is increasingly redirecting Rocky Mountain (Rockies) gas, currently flowing east, toward the west, which has resulted in Rockies natural gas supply having to compete with supply from prolific gas basins in the Bakken, Montney, Duverney and Horn River formations. If demand in the pipeline�'s service area does not pick up significantly by 2021, further gas price deterioration could occur, providing limited upside potential for the pipeline, and could result in further negative rating action by DBRS. The rush to export liquefied natural gas (LNG) from the West Coast could also lead to an overcrowded market with larger players having the first mover advantage and the LNG export market becoming more competitive.

Veresen�'s business risk profile is currently 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. Nearly 50% of Veresen�'s EBITDA comes from Alliance Pipeline L.P. (Alliance; rated A (low) by DBRS; 50% owned), a liquids-rich gas pipeline connecting growing supplies to premium markets in the Midwestern United States. Alliance�'s re-contracting fundamentals are reasonably strong because of the current fully utilized capacity and liquid-rich gas demand/supply dynamics.

(2) Financial Risk Profile - Modestly Negative

DBRS expects pro forma credit metrics to weaken modestly on completion of the Acquisition. The USD 1.425 billion acquisition is materially significant as it represents 50% of Veresen�'s consolidated assets, and is by far the biggest acquisition in the Company�'s history.

Veresen plans to initially finance the Acquisition with approximately: 1) $800 million in equity (with a 15% over allotment option), 2) $750 million in debt from new credit facilities and 3) the balance from an existing revolving credit facility. Veresen intends to refinance the acquisition-related borrowings over the course of the next 12 months through various capital market instruments as well as with ongoing proceeds received from equity issued in connection with Veresen�'s Premium Dividend and Dividend Reinvestment Plan.

Veresen�'s 50% ownership interest in Ruby would be in the form of convertible preferred shares, while El Paso Pipeline Partners, an affiliate of Kinder Morgan Inc., will have a 50% ownership in the form of common shares. The preferred shares are convertible to common shares at the option of Veresen, or through mandatory conversion triggered by additional Ruby pipeline contracting of at least 0.25 bcf/d for similar terms and at rates generally consistent with existing long�-term contracts. A USD 91 million distribution is payable to Veresen as annual preferred share dividends. Based on a pro forma of the Acquisition, DBRS estimates that the credit metrics will weaken for Veresen (non-consolidated) with cash flow-to-interest at 5.3 times (x) (7.9x in the last 12 months (LTM) Q2 2014), higher debt-to-capital at 38.2% (35.2% at Q2 2014) and weaker cash flow-to-total debt at 26.0% (34.7% LTM Q2 2014). The significant increase in debt also reduces the Company�'s financial flexibility and could affect its ability to meet large capital expenditure needs in the future.

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

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

The applicable methodologies are Rating Pipeline and Diversified Energy Companies, Rating Holding Companies and Their Subsidiaries and Preferred Shares and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions), which can be found on our website under Methodologies.

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