DBRS Morningstar Confirms Ratings of Westcoast Energy Inc. at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Westcoast Energy Inc.’s (Westcoast or the Company) Issuer Rating and Senior Unsecured Notes rating at A (low), both with Stable trends. DBRS Morningstar determines its ratings by evaluating the Company’s pipeline operations combined with the benefits of substantial dividends from an “A”-rated entity, as described below. The rating confirmations reflect the regulated, cost-of-service (COS) nature of the Company's natural gas pipeline operations and investment in a strong natural gas distribution franchise (described below), supported by credit metrics, at levels that are acceptable for the current ratings, in the last 12 months (LTM) ended March 31, 2022, and that DBRS Morningstar expects to be maintained over the medium term. The Company’s liquidity position remains adequate.

Westcoast’s natural gas pipeline operations include the wholly owned B.C. Pipeline and the 78%-owned Maritimes & Northeast Pipeline Limited Partnership (M&NP Canada) natural gas pipeline systems under full COS regulation with no associated commodity or volume risk. Westcoast also benefits from its 46% equity ownership of Enbridge Gas Inc. (EGI; rated “A” with a Stable trend by DBRS Morningstar), an Ontario Energy Board-regulated natural gas distribution, storage, and transmission franchise in Ontario that generates relatively low-risk, stable earnings and cash flow. DBRS Morningstar evaluates Westcoast’s pipeline operations and adds the benefits of EGI ownership to determine the Company’s ratings.

DBRS Morningstar estimates that, in the LTM ended March 31, 2022, approximately 62% of Westcoast’s cash flow was derived from EGI dividends. Following placement into service of its $1.5 billion of growth projects in Q4 2021, DBRS Morningstar estimates that approximately two-thirds of Westcoast’s cash flow will be derived from EGI dividends going forward. While EGI’s credit profile is expected to remain strong over the medium term, any substantial increase in capital expenditure at EGI could potentially result in a decrease in dividend payments to Westcoast and weaken the Company’s financial profile.

Over the medium term, DBRS Morningstar believes that a positive rating action is unlikely. A negative rating action is also unlikely but could occur if Westcoast’s credit metrics weaken substantially below DBRS Morningstar’s expectations on a sustained basis or potentially if EGI dividends are substantially lowered on a sustained basis.

ESG CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

The principal methodology is Rating Companies in the Pipeline and Midstream Energy Industry (November 3, 2021; https://www.dbrsmorningstar.com/research/387443), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).

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 [email protected].

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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