DBRS Confirms Enbridge Income Fund’s Ratings at BBB (high), Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and the Senior Unsecured Long-Term Notes rating of Enbridge Income Fund (EIF or the Fund) at BBB (high). The trends are Stable. The debt issued by the Fund is irrevocably and unconditionally guaranteed by Enbridge Income Partners LP (EIPLP), Enbridge Income Partners Holdings Inc. (EIPH), Enbridge Income Partners GP Inc. (EIPGP) and Enbridge Commercial Trust (ECT), collectively the Fund Group.

EIPLP’s financial profile remained solid in the first half of 2018 (H1 2018), reflecting stronger performance from the liquids pipelines segment, mostly from the Canadian Mainline owned by EIPLP’s subsidiary, Enbridge Pipelines Inc. (EPI; rated “A” with a Stable trend by DBRS) (see DBRS’s EPI report dated August 2, 2018, for more details). On a Fund Group basis whereby DBRS adds EIF’s debt and associated interest expenses to EIPLP’s amounts to calculate key credit metrics, the Fund Group’s credit metrics improved in H1 2018 from a solid level in 2017 and remain supportive of the current ratings.

On September 18, 2018, Enbridge Inc. (Enbridge; rated BBB (high) with a Stable trend by DBRS) announced an agreement to acquire all the outstanding publicly-owned common shares of Enbridge Income Fund Holdings Inc. (EIFH), the Fund’s holding company, in exchange for Enbridge’s common shares (the Buyback). On May 17, 2018, Enbridge had announced its proposed Corporate Simplification Transactions that would, if successful, allow it to acquire the remaining third-party public floats of its Sponsored Vehicles, including EIFH. On May 9, 2018, EIFH announced the sale of a 49% interest in various wind and solar power-generation facilities (which closed on August 1, 2018, for approximately $1.05 billion). DBRS is of the opinion that the sale of interests in wind and solar power facilities does not have a material impact on the Fund’s earnings and cash flow profiles since the Green Power segment (on a 100% basis) accounted for only 8.5% of EIPLP’s segment EBITDA for the 12 months ending June 30, 2018. DBRS estimates that over 85% of EIPLP’s segment EBITDA will continue to be contributed by the low-risk liquids pipelines segment, of which over 95% will be contributed by EPI and Enbridge Pipelines (Athabasca) Inc. (a regional oil sands pipeline system operating under take-or-pay and cost of service contracts). The Buyback, subject to EIFH’s shareholders’ approval, if completed, would result in the Fund Group’s future equity requirements being funded by Enbridge, rather than EIFH, although Enbridge was already prepared to meet these requirements itself in the event that EIFH was not able to issue equity. In DBRS’s opinion, this potential Fund ownership change would not change the Fund’s business risk profile as it would retain the same indirect asset ownership (through its subsidiaries) that is in place today. In addition, the Fund’s capital structure and distribution policies would continue to be determined by Enbridge (see DBRS’s press release on Enbridge’s Corporate Simplification Announcement dated May 17, 2018, for more details).

DBRS expects that future cash flow growth will be mainly from the liquids pipelines segment, notably the Canadian Line 3 Replacement Program (the L3R) undertaken by EPI. After a series of delays due to regulatory issues in Minnesota, the L3R application for the preferred route for the U.S. portion was approved in August 2018. The completion of this project is expected in H2 2019. During the construction period, DBRS expects the Fund Group’s credit metrics to be under pressure through 2019, but to remain supportive of the current ratings.

DBRS believes that a positive rating action for the Fund is not likely in the medium term. Although unlikely, a negative rating action is possible if the Fund Group’s credit metrics weaken beyond DBRS’s expectation during its growth phase and if such trend is unlikely to be reversed within a reasonable time frame.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry, DBRS Criteria: Guarantees and Other Forms of Support and DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS will publish a full report shortly that will provide additional detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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