DBRS Confirms Veresen Inc. at BBB and Pfd-3 with Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Notes rating of Veresen Inc. (Veresen or the Company) at BBB as well as its Preferred Shares rating at Pfd-3. The trend on the ratings is Stable. Veresen’s ratings are supported by firm take-or-pay and fee-based cash flows from a diversified portfolio of energy infrastructure assets; however, some of the Company’s midstream gas gathering and processing operations are exposed to volume and commodity price risks.

Alliance Pipeline Limited Partnership and Alliance Pipeline LP (rated BBB with a Stable trend by DBRS) recently signed new take-or-pay contracts starting December 1, 2015, with an average duration of 4.8 years. Ruby Pipeline (Ruby) earnings are also underpinned by firm take-or-pay contracts with an average duration of eight years, which supports the annual fixed preferred share dividend to Veresen. The Company’s power assets continue to provide stable cash flows underpinned by long-term power purchase agreements with strong counterparties. DBRS believes that, while the formation of Veresen Midstream (owned equally by Veresen and affiliates of KKR & Co. L.P.) is supported by a 30-year fee-based contract that adds diversification to the Company, this benefit could be offset by significant financing requirements at Veresen Midstream and cash distributions to Veresen that will only be available after debt servicing at Veresen Midstream. (Please refer to the DBRS press release dated December 22, 2014, for details.) Furthermore, while Veresen Midstream’s earnings from Hythe/Steeprock largely comprise a minimum volume and fee commitment provided by Encana Corporation (Encana; rated BBB with a Stable trend by DBRS), earnings from the Dawson asset are based on actual throughput received from Encana and Cutbank Ridge Partners. Aux Sable earnings are exposed to both volume and commodity price volatility.

The Company expects to obtain Federal Energy Regulatory Commission Notice to Proceed on its Jordan Cove LNG and the Pacific Connector project in mid-2016 to construct and operate a liquefied natural gas export facility as well as related power and pipeline infrastructure at Coos Bay, Oregon (the Project). DBRS recognizes that the Project is significant and transformative for Veresen’s business risk profile; however, no offtake agreements, ownership level or financing plans have been announced by the Company at this time. DBRS will continue to monitor the developments on the Project to assess any impact on the Company’s financial profile.

The Company’s non-consolidated financial profile remains reasonable for its current rating category. On a non-consolidated basis, the Company’s credit metrics improved in 2015 as debt relating to the Ruby acquisition in 2014 was fully repaid in 2015 with non-consolidated debt-to-capital at 24.1% and cash flow to debt at 32.5% as of Q3 2015. DBRS expects the Company to remain prudent in its future financing strategy to maintain its non-consolidated leverage at or near the 30.0% level.

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), DBRS Criteria: Rating Holding Companies and Their Subsidiaries (January 2015) and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (December 2014), which can be found on our website under Methodologies.