DBRS Confirms Maritimes & Northeast Pipeline Limited Partnership at “A,” Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Secured Notes ratings of Maritimes & Northeast Pipeline Limited Partnership (M&NP Canada, the Company or the Partnership) at “A,” all with Stable trends. The ratings are supported by (1) firm transportation contracts with investment-grade shippers, (2) backstop provided by ExxonMobil Canada, (3) regulated cost-of service-based tolls, (4) cash collateral for debt service and (5) cross-default provisions of the two M&NP Notes. M&NP Canada’s credit metrics continue to improve because of the amortizing nature of the Notes and the relatively stable regulated cost-of-service-based earnings.

M&NP Canada is a supply-push natural gas pipeline that is highly dependent on supplies from Sable Offshore Energy (Sable) and Encana’s Deep Panuke offshore platform. DBRS recognizes that the natural gas reserves in the Scotian Shelf basin, which provide the supply, are declining and the weak natural gas prices, together with a moratorium on shale gas fracking in New Brunswick, prevent any new reserve development activity. The Deep Panuke offshore platform has been shut in since March 2016 and is expected to commence production at reduced rates only in the winter season. This has resulted in declining pipeline utilization (30% in the 12 months ended (LTM) June 30, 2016, from 65% in 2009). However, the ExxonMobil backstop agreement, in combination with ExxonMobil’s firm service agreement (FSA), ensure that M&NP Canada will continue to receive revenues based on a minimum throughput equal to 78% of design capacity.

DBRS notes that M&NP Canada faces re-contracting risk when existing firm shipping contracts expire in 2019. However, the existing Senior Secured Notes ratings are immune from re-contracting risk, as the 6.90% Senior Secured Notes and the 4.34% Senior Secured Notes (collectively, the Notes) are amortizing and are expected to be fully repaid by 2019, at which time the ExxonMobil Backstop also expires. DBRS is of the view that contract levels post-2019 will likely be lower than the current contracted capacity of 434,000 MMBtu/d. However, M&NP Canada’s strategy for the pipeline post-2019 is unclear at this time. The Company expects the declining offshore supply situation to be mitigated when the Atlantic Bridge project is placed in service (expected by November 2017). This link pipeline is designed to bring Marcellus Shale gas across the Algonquin Gas Transmission system and flow gas north on the M&NP U.S. system with deliveries into M&NP Canada, which is bi-directional.

Following the September 6, 2016, announcement that Enbridge Inc. and Spectra Energy Corp (Spectra, M&NP’s ultimate parent) had entered into a definitive merger agreement that would combine the two companies in a stock-for-stock merger transaction (the Transaction), DBRS confirmed the Issuer Rating and Senior Secured Notes ratings of Maritimes & Northeast Pipeline Limited Partnership with Stable trends. The confirmations were based on a review of the Transaction and DBRS’s view that the Transaction, as announced, will have no impact on the stand-alone credit profiles of Spectra and its DBRS-rated subsidiaries (see press release, “DBRS Confirms Spectra Energy Capital, LLC and Rated Subsidiaries, Removes UR-Dev. Status,” September 8, 2016, for more information).

Notes:

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 Ratings Companies in the Pipeline and Diversified Energy Industry (December 2015), which can be found on our website under Methodologies.

This rating was initiated at the request of the rated entity.

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