DBRS Morningstar Confirms 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.

The rating confirmations reflect the regulated cost-of-service (COS) nature of the Company's natural gas pipeline operations and the benefits of owning a material investment in a strong regulated natural gas distribution franchise (described below). The ratings are supported by credit metrics at levels that are acceptable for the current ratings and DBRS Morningstar's expectation that this will 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 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 on a standalone basis and adds the benefits of its EGI ownership to determine the Company’s ratings.

In the near term, DBRS Morningstar expects Westcoast’s earnings and cash flow to be relatively stable, generated mainly from the B.C. Pipeline under a COS framework.

Medium- to long-term growth could potentially come from two major growth projects that are expected to receive regulatory approval in 2024 and achieve in-service dates in 2026 (the $1.2 billion T-North Expansion) and in 2028 (the $3.6 billion T-South Expansion), respectively, in support of liquefied natural gas exports from the west coast of Canada to Asian markets. DBRS Morningstar expects funding for the projects to be provided by Westcoast's ultimate parent, Enbridge Inc. (rated BBB (high) with a Stable trend by DBRS Morningstar).

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.

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 (May 17, 2022).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Pipeline and Midstream Energy Industry (November 3, 2022; https://www.dbrsmorningstar.com/research/404917)

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

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 rating was initiated at the request of the rated entity.

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.

This is a solicited credit rating.

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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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