DBRS Downgrades Ratings of Veresen Inc. to BBB from BBB (high), Trend Stable, Removes Ratings from Under Review with Negative Implications

DBRS has today downgraded Veresen Inc.’s (Veresen or the Company) Issuer Rating and Senior Unsecured Notes rating to BBB from BBB (high) and its Preferred Shares rating to Pfd-3 from Pfd-3 (high), following the closing of Veresen’s acquisition of 50% convertible preferred interest in Ruby pipeline system (Ruby). Concurrently, the ratings have been removed from Under Review with Negative Implications, having been placed as such in September 2014. (Please refer to DBRS press release dated September 23, 2014, for details). The trend on the ratings has been changed to Stable.

The USD 1.425 billion acquisition, including transaction costs, was financed with CAD 920 million of Veresen common equity and CAD 727 million of bank debt. This was substantially in line with DBRS expectations, as noted in the previous press release. DBRS had previously noted that the acquisition will have a negative impact on the Company’s business risk profile and a moderately negative impact on its financial risk profile. Due to low average throughput utilization (55%, compared to 71% contracted), Ruby is exposed to re-contracting risk when the majority of contracts (approximately 65%) expire in 2021, and the pipeline’s capacity may not be re-contracted at current tolls, volumes or duration. This is largely a reflection of the weak natural gas pricing environment and competitive landscape. In addition, Company’s leverage is expected to be moderately higher and coverage ratios are expected to weaken due to the higher debt levels resulting from the acquisition.

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 Criteria, Preferred Shares and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions), which can be found on our website under Methodologies.

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