DBRS Updates Report on Enbridge Income Fund

DBRS Limited (DBRS) has today published an updated report on Enbridge Income Fund (EIF or the Fund). On December 3, 2014, DBRS placed the BBB (high) Issuer Rating and the BBB (high) Senior Unsecured Long-Term Notes rating of EIF Under Review with Developing Implications. The rating actions followed the announcement that Enbridge Inc. (ENB) plans to transfer its Canadian liquids pipelines business, consisting of Enbridge Pipelines Inc. (EPI) and Enbridge Pipelines (Athabasca) Inc. (EPA), along with certain renewable power generation assets (which are currently held within EPI), to its Canadian affiliate, EIF (the Transaction). In addition, ENB is considering the potential for public debtholders of ENB to exchange up to $4 billion of ENB debt for new notes of EIF.

The Transaction is targeted for completion by mid-2015. The current rating actions reflect uncertainty associated with the ongoing corporate developments, percentage take-up of the debt exchange and the future funding strategy among the entities within ENB’s organization. For clarity, DBRS does not rule out potential future rating changes for EIF and will provide updates as more information becomes available.

DBRS expects a positive impact on EIF from a business risk profile perspective, following the dropdown of EPI and EPA to the Fund. This positive business risk impact would reflect a significant increase in the Fund’s scope and size, as well as the fact that EPI and EPA assets are all liquids pipelines assets that are under long-term contracts with minimal volume risk and no price risk. In November 2014, the Fund completed its acquisition of a 50% interest in Alliance Pipeline L.P. (the U.S. portion of the Alliance System) and a 100% interest in Class A Units in an entity that owns the Southern Lights Pipelines (the November 2014 Acquisition). The November 2014 Acquisition provided the Fund with a modest improvement in its business risk profile and a neutral impact on its financial risk profile (see DBRS press release dated September 22, 2014).

From a financial risk profile perspective, the Fund’s direct external debt would be expected to increase to $6.5 billion from $2.5 billion (assuming the intercompany loan exchange is completed). However, the debtholders at the Fund would benefit from substantial cash distributions from EPI and EPA before EIF makes cash distributions to ENB. This benefit is expected to more than offset the incremental debt that the Fund would assume in connection with the Transaction. However, due to some uncertainties with respect to details of the debt restructuring associated with the Transaction (percentage take-up of the debt exchange), DBRS currently believes that Under Review with Developing Implications is the appropriate rating action at this time.

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 methodology is Rating Companies in the Pipeline and Diversified Energy Industry (January 2015), which can be found on our website under Methodologies.