DBRS Confirms Enbridge Pipelines Inc. at “A” and R-1 (low), Stable Trends, and Notes CP Program Increase to $2.0 Billion

DBRS Limited (DBRS) has today removed Enbridge Pipelines Inc. (EPI) from Under Review with Developing Implications and confirmed its ratings as follows:

-- Issuer Rating rated “A,” Stable trend
-- Medium-Term Notes & Unsecured Debentures rated “A,” Stable trend
-- Commercial Paper (CP) rated R-1 (low), Stable trend

The rating actions reflect DBRS’s review of relevant documentation, including the Management Information Circular to the shareholders of Enbridge Income Fund Holdings Inc. (EIFH), relating to the transaction announced by Enbridge Inc. (ENB), in which ENB plans to transfer the Canadian liquids pipelines business, consisting of EPI and Enbridge Pipelines (Athabasca) Inc. (EPA) as well as certain renewable power generation assets (which are currently held within EPI) to its Canadian affiliate, Enbridge Income Fund (EIF) (the Transaction). See DBRS press release dated June 19, 2015, for detail.

DBRS notes that EPI’s CP program has been increased to $2.0 billion from $300 million. This increase is in line with DBRS’s expectation that EPI will be issuing its own debt to fund its capital expenditure (capex) program instead of intercompany loans from ENB. This $2.0 billion CP program is fully supported by a $3.0 billion syndicate of credit facilities with major banks. DBRS has reviewed the new credit facility agreement and related CP program documents and is satisfied that these documents meet DBRS’s requirements. As a result, DBRS has confirmed EPI’s CP rating at R-1 (low), Stable trend.

BACKGROUND
The December 3, 2014, placement of EPI’s ratings Under Review with Developing Implications by DBRS followed the announcement that ENB planned the above-noted Transaction. DBRS noted that the proposed Transaction was not expected to result in material changes to EPI’s credit profile and that the ratings of EPI would likely be confirmed.

In addition to the Transaction, during Q4 2014, ENB and EPI began formalizing a plan to transfer EPI’s ownership interest in Enbridge Energy Company, Inc. (EECI, wholly owned by EPI) to ENB (the EECI Transfer). EECI directly holds the U.S. assets of EPI, which include certain liquids pipeline assets, Enbridge Energy Partners, L.P. (EEP) and certain of EPI’s renewable energy projects. The EECI Transfer was completed August 10, 2015.

The June 19, 2015, maintenance of the Under Review with Developing Implication status of EPI’s ratings by DBRS followed the announcement that ENB and EIF had reached an agreement to proceed with the Transaction. The Transaction is subject to customary regulatory approvals and closing conditions as well as a vote of the public shareholders of EIFH, which should occur on August 20, 2015, with closing expected to follow shortly thereafter. DBRS noted that it expected to confirm EPI’s ratings with Stable trends upon completion of the Transaction.

IMPACT ON EPI — UPDATE
Following our review, DBRS continues to believe that the Transaction will not have a material impact on EPI's credit profile. As noted in our press release dated June 19, 2015: “DBRS’s EPI ratings continue to be based on the business and financial risk profiles of its regulated Canadian Mainline (Mainline) liquids pipeline, which has fully supported EPI’s direct external debt.” DBRS does not expect material changes from a business risk profile perspective or from a credit metric perspective with respect to EPI’s DBRS ratings as a result of the Transaction. The vast majority of EPI’s direct and consolidated growth capex program is related to liquids pipelines projects that are supported by low-risk long-term contractual and/or regulatory frameworks.

Following the Transaction, equity support for EPI’s capex program will be provided by EIFH through EIF, instead of ENB under the current structure. DBRS believes that the change in the source of equity funding will not have a material impact on EPI's future capex funding program as ENB and EIFH will enter into an agreement under which ENB will provide equity support in the event that EIFH chooses not to issue equity on its own.

From a financial risk perspective, DBRS does not expect any material impact of the Transaction on EPI’s credit metrics. Currently, ENB has provided intercompany loans to fund EPI’s capital projects until they become operational and once a project becomes operational, EPI would issue its own debt to pay off the intercompany loan. Following the Transaction, EPI will issue its own debt to fund the debt portion of its capital projects, which remain unchanged post-Transaction. The debt-to-capital target at EPI remains unchanged at 45% equity/55% debt. Historically, DBRS has assessed the credit metrics at EPI based on its total debt, including intercompany loans. As a result, the change in the funding source will not have a material impact on EPI’s credit metrics post-Transaction.

DBRS acknowledges that the pressure on EPI’s credit metrics remains following the Transaction as EPI is undertaking a number of projects. Typically, debt is issued upfront to finance the projects but cash flow will not be realized until the projects become operational. As a result, DBRS believes that this pressure will remain over the medium term.

DBRS expects to resolve the Under Review status of ENB and EIF following the EIFH shareholder vote, expected on August 20, 2015.

Notes:
All figures are in Canadian 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.

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

The applicable methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (January 2015) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.