DBRS Morningstar Confirms Ratings of Inter Pipeline (Corridor) Inc. at A (low) and R-1 (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Commercial Paper rating of Inter Pipeline (Corridor) Inc. (Corridor or the Company) at A (low) and R-1 (low), respectively. All trends are Stable. Corridor is 100% owned by Inter Pipeline Ltd. (IPL; rated BBB (low), Stable by DBRS Morningstar). The rating confirmations reflect the Company's strong business risk profile and stable financial risk profile.

Corridor’s business risk profile continues to be supported by a cost-of-service-based firm service agreement (FSA) with relatively strong investment-grade shippers that are also the Athabasca Oil Sands Project (AOSP) sponsors: Canadian Natural Resources Limited’s (CNRL; rated A (low) with a Stable trend by DBRS Morningstar) owns 70%, including 60% through its affiliate, Canadian Natural Upgrading Limited; Chevron Corporation (rated AA with a Stable trend by DBRS Morningstar) owns 20%; and Shell Canada Limited owns 10%. The FSA extends to 2049 and allows recovery of substantially all operating costs, including depreciation, taxes, and financing costs, plus a return on equity (ROE) on the rate base, which eliminates volume or commodity price risks and provides a steady stream of cash flows. Corridor's business risk profile is also supported by ample recoverable bitumen reserves at AOSP and Corridor's position as the sole pipeline with exclusive rights to transport diluted bitumen produced from AOSP. DBRS Morningstar believes that AOSP will remain a key focus asset for the shippers given its low decline rate and ability to generate positive netbacks at low crude oil prices, incentivizing them to use the pipeline.

The overall operating environment for Corridor has improved in 2022. Crude oil prices have improved materially in 2022 because of the supply constraints created by the sanctions imposed on Russia as a result of its invasion of Ukraine and improving global oil demand. The resultant strong cash flows have allowed the shippers to deleverage their balance sheet ahead of schedule. As a result, the overall credit profile of the shippers has improved with DBRS Morningstar upgrading the ratings of CNRL, the primary shipper on Corridor, to A (low) from BBB (high) (see DBRS Morningstar press releases dated June 3, 2022). DBRS Morningstar also notes that rising interest rates have a positive impact on Corridor's earnings as financing costs are recoverable from shippers while Corridor’s allowed ROE is linked to long-term interest rates. DBRS Morningstar notes that the acquisition of IPL by Brookfield Infrastructure Partners L.P. and its institutional partners in 2021 has had no impact on Corridor's ratings.

DBRS Morningstar expects Corridor to maintain a stable financial profile with predictable cash flows supported by the long-term FSA. DBRS Morningstar notes that Corridor has maintained its debt-to-rate base ratio at or around the benchmark criteria of 75% (Q1 2022: 72.7%). The ratings incorporate DBRS Morningstar’s review of the Company’s financial and other relevant information, which will not be disclosed in its rating report for Corridor, as it is a private company. Corridor has maintained a stable financial profile. An upgrade to Corridor’s ratings is unlikely in the near term; however, the ratings could come under pressure should the credit quality of the shippers deteriorate materially.

ENVIRONMENTAL, SOCIAL, GOVERNANCE 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 methodologies are Rating Companies in the Pipeline and Midstream Energy Industry (November 3, 2021; https://www.dbrsmorningstar.com/research/387443) and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 1, 2022; https://www.dbrsmorningstar.com/research/393065), 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 had 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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