DBRS Upgrades Express Pipeline Limited Partnership & Express Pipeline LLC’s Subordinated Secured Notes to BBB, Confirms Issuer and Senior Secured Notes Rating at A (low), Stable Trend

DBRS Limited (DBRS) has today upgraded the rating of Express Pipeline Limited Partnership & Express Pipeline LLC’s (collectively, Express or the Company) Subordinated Secured Notes due 2019 to BBB from BBB (low) and has confirmed the Issuer Rating and rating of the Senior Secured Notes due 2020 at A (low). All trends are Stable. The ratings reflect the Company’s low business risk profile underpinned by long-term take-or-pay shipping contracts providing a secure and growing cash flow stream and strong financial credit metrics. The rating upgrade to the Subordinated Secured Notes reflects the improved coverage ratio (debt service coverage ratio (DSCR) of 4.42 times (x) in 2014 versus 1.70x in 2005), the expectation of growing cash flows following the successful re-contracting of a major portion of the pipeline’s capacity in 2014.

Express is a demand-pull crude oil pipeline system offering competitive tolling options for shippers serving premium markets and refineries in the U.S. Rocky Mountains (PADD IV) and Midwest (PADD II) regions. The Company’s fee for service tolling structure and long-term take-or-pay contracts provide secure and growing revenues and cash flows with no direct commodity risk. A majority of the long-term contracts are with investment-grade shippers and cover 80% of the pipeline’s design capacity, and 90% of the current effective capacity. Although volumes on the Platte section of the pipeline are uncommitted, the relatively strong throughput on Express continues to have a positive impact on Platte volumes. Furthermore, Platte volume demand has continuously exceeded capacity since 2005. Express transports crude oil from the growing supply basins of Western Canada, the Bakken and the Rockies. Spectra Energy Partners (SEP) plans to expand the pipeline and terminals (Express Enhancement Project) in 2015 in order to meet strong market demand. The $135 million project is underpinned by long-term, fee-based contracts and is expected to maximize system throughput through the addition of on-system terminal and storage assets, and is expected to be in service in 2016. The Company’s business risk profile remains consistent with current ratings.

The Company’s strong financial risk profile is supported by a highly secure and contracted stream of cash flows. The Company’s credit metrics (Cash flow-to-debt: 95.1%; Debt-to-capital: 34.6%; EBIT-to-Interest: 11.4x at December 31, 2014) are in line with DBRS expectations. Financial metrics have continued to improve with growing cash flows and ongoing amortization of debt. DBRS expects debt levels to decrease with amortization of the Subordinated Notes, as planned growth projects are expected to be funded by SEP with equity with no incremental debt issuance at Express.

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 Companies in the Pipeline and Diversified Energy Industry, which can be found on our website under Methodologies.

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