Category: Issue Comments

Intact Financial Corporation has announced:

that 1,594,996 of its 10,000,000 Non-cumulative Rate Reset Class A Shares Series 3 (the “Series 3 Preferred Shares”) were tendered, for conversion on September 30, 2016, on a one-for-one basis, into Non-cumulative Floating Rate Class A Shares Series 4 of IFC (the “Series 4 Preferred Shares”) after having taken into account all elections received before the September 15, 2016, 5:00 p.m. (ET) conversion deadline. As a result of the conversion, on September 30, 2016, IFC will have 8,405,004 Series 3 Preferred Shares and 1,594,996 Series 4 Preferred Shares issued and outstanding. The Series 3 Preferred Shares will continue to be listed on the Toronto Stock Exchange (“TSX”) under the symbol IFC.PR.C. The Series 4 Preferred Shares will begin trading on the TSX on September 30, 2016 under the symbol IFC.PR.D, subject to IFC fulfilling all the listing requirements of the TSX.

Subject to certain conditions described in IFC’s prospectus supplement dated August 11, 2011, IFC may redeem the Series 3 Preferred Shares, in whole or in part, on September 30, 2021 and on September 30 every five years thereafter and may redeem the Series 4 Preferred Shares, in whole or in part, after September 30, 2016.

For more information on the terms of, and risks associated with an investment in, the Series 3 Preferred Shares and the Series 4 Preferred Shares, see IFC’s prospectus supplement dated August 11, 2011 which is available on www.sedar.com.

I previously reported that IFC.PR.C will reset at 3.332%, to be reset again in five years at GOC-5 + 266bp if not called. IFC.PR.D will pay 3-month bills +266bp, reset quarterly. There will be another conversion opportunity at the next Reset Date.

Canaccord Genuity Group Inc. has announced:

that after having taken into account all election notices received by the September 15, 2016 conversion deadline in respect of the Cumulative 5-Year Rate Reset First Preferred Shares, Series A (the “Series A Preferred Shares”) tendered for conversion into Cumulative Floating Rate First Preferred Shares, Series B (the “Series B Preferred Shares”), the holders of the Series A Preferred Shares are not entitled to convert their shares. There were 761,594 Series A Preferred Shares tendered for conversion, which is less than the 1,000,000 shares required for the ability to proceed with the conversion into Series B Preferred Shares, in accordance with the terms of the Series A Preferred Shares.

There are currently 4,540,000 Series A Preferred Shares listed on the Toronto Stock Exchange under the symbol CF.PR.A.

I previously reported that CF.PR.A will reset at 3.885% for the next five years before resetting again at GOC-5 + 321bp. The FloatingReset shares, which will not be issued at the present time, would have paid three-month bills +321bp, reset quarterly. The notice of extension was also reported.

Sun Life Financial Inc. has announced:

that 1,080,072 of its 8,000,000 Class A Non-Cumulative Rate Reset Preferred Shares Series 10R (the “Series 10R Shares”) have been elected for conversion on September 30, 2016, on a one-for-one basis, into Class A Non-Cumulative Floating Rate Preferred Shares Series 11QR (the “Series 11QR Shares”). Consequently, on September 30, 2016, Sun Life Financial will have 6,919,928 Series 10R Shares and 1,080,072 Series 11QR Shares issued and outstanding. The Series 10R Shares and Series 11QR Shares will be listed on the Toronto Stock Exchange under the symbols SLF.PR.H and SL.PR.K, respectively.

Subject to regulatory approval, Sun Life Financial: (i) may redeem the Series 10R Shares and the Series 11QR Shares in whole or in part on September 30, 2021 and on the 30th of September every five years thereafter by the payment of an amount for each share so redeemed of $25.00, together with all declared and unpaid dividends to the date fixed for such redemption, and (ii) may redeem the Series 11QR Shares in whole or in part on any other date after September 30, 2016 by the payment of an amount for each share so redeemed of $25.50, together with all declared and unpaid dividends to the date fixed for such redemption.

I previously reported that SLF.PR.H will reset at 2.842% for five years, while SLF.PR.K will pay 3-month bills + 217bp, reset quarterly; the notice of extension was also reported.

The Bank of Nova Scotia has announced:

that it has completed the domestic public offering of Non-cumulative 5-Year Rate Reset Preferred Shares Series 38 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 38”).

Scotiabank sold 20 million Preferred Shares Series 38 at a price of $25.00 per share and holders will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending January 26, 2022, yielding 4.85% per annum, as and when declared by the Board of Directors of Scotiabank. The gross proceeds of the offering were $500 million.

The offering was made through a syndicate of underwriters led by Scotia Capital Inc. The Preferred Shares Series 38 commenced trading on the Toronto Stock Exchange today under the symbol BNS.PR.H.

On January 27, 2022 and on January 27 every five years thereafter, Scotiabank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem all or any number of the then outstanding Preferred Shares Series 38 at a redemption price which is equal to par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.19% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 38 will, subject to certain conditions, have the right to convert all or any part of their shares to Non-cumulative Floating Rate Preferred Shares Series 39 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 39”) of Scotiabank on January 27, 2022 and on January 27 every five years thereafter.

Holders of the Preferred Shares Series 39 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.19%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 39 will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series 38 on January 27, 2027 and on January 27 every five years thereafter.

BNS.PR.H is a FixedReset, 4.85%+419, NVCC, announced 2016-9-7. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 2,738,643 shares in a range of 25.41-49 before closing at 25.46-47. This represents the tenth largest daily volume in my database, just behind TD.PF.H, which settled last week, despite having only half the number of shares outstanding. Vital statistics are:

DBRS has announced that it:

has today upgraded the Class B Preferred Shares, Series 2 (the Preferred Shares) rating of BNS Split Corp. II (the Company) to Pfd-2 from Pfd-2 (low). The Preferred Shares were issued in September 2015 following a reorganization of the Company at an issue price of $19.71 each. At the same time, the Company redeemed all of the outstanding Class B Preferred Shares, Series 1. The redemption date of the Preferred Shares is September 22, 2020.

The Company holds a portfolio (the Portfolio) of common shares of Bank of Nova Scotia (BNS) (rated AA, Negative trend by DBRS). The dividends received from the Portfolio are used to pay fixed cumulative quarterly distributions to the holders of the Preferred Shares in the amount of $0.1971 per quarter, representing 4.0% per annum on the issue price. Excess dividends net of all expenses of the Company, after the preferred cumulative dividends have been paid to the holders of the Preferred Shares, may be paid as dividends on the Capital Shares or re-invested by the Company in additional BNS Shares as determined by the board of directors of the Company. The distributions of dividends on the Preferred Shares may be additionally funded from the sale of the underlying shares. The Company may engage in securities lending to supplement the income generated by the dividends.

As of September 1, 2016, the downside protection is 68.4%, an increase from the initial 61.6% recorded in September 2015 at the time of the Preferred Shares issuance. An increase in dividend distributions from BNS helped boost the dividend coverage ratio, which is approximately 2.7 times. Taking into consideration the dividend coverage, the amount of downside protection available, and the absence of the grind on the Portfolio, the rating of the Preferred Shares has been upgraded to Pfd-2.

BSC.PR.C is tracked by HIMIPref™ but relegated to the Scraps index on volume concerns – the average trading volume is less than 100 shares daily.

This issue actually settled on August 30, but I neglected to post.

Westcoast Energy Inc. has announced:

that it has closed its previously announced offering of 12,000,000 Cumulative 5-Year Minimum Rate Reset Redeemable First Preferred Shares, Series 12 (the “Series 12 First Preferred Shares”) at a price of $25.00 per Series 12 First Preferred Share for aggregate gross proceeds of $300,000,000. The offering was made through a syndicate of underwriters led by TD Securities Inc. and CIBC Capital Markets.

The proceeds are expected to be used to fund capital expenditures and for general corporate purposes.

The Series 12 First Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol “W.PR.M”.

W.PR.M will be tracked by HIMIPref™; it has been assigned to the FixedResets subindex.

The issue traded 1,764,113 in a range of 25.23-34 before closing at 25.29-32.

Vital statistics on August 30 were:

TD.PF.H is a FixedReset, 4.85%+412, NVCC, announced 2016-8-29. It is a monster issue, the largest in the market, with 40-million shares (=$1-billion p.v.) outstanding.

The issue settled today and traded a whopping 2,936,651 shares in a range of 25.33-50 prior to closing at 25.43-46, 75×19. This is the ninth highest number of shares traded on a single day in my entire database (which contains just over a million records going back to 1993) and the highest since MFC.PR.A traded nearly 3.6-million shares on 2004-2-13.

TD.PF.H will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex. Vital statistics are:

Implied Volatility analysis shows it to be slightly expensive to its peers at current levels:

Click for Big

As a matter of interest, TD has just issued sub-debt in the US market:

The Toronto-Dominion Bank (“TD” or the “Bank”) today announced a U.S. offering of US$1.5 billion of 3.625% Non-Viability Contingent Capital Subordinated Notes due 2031 (the “Notes”), which will constitute subordinated indebtedness of the Bank. The Notes are registered with the U.S. Securities and Exchange Commission. The Notes will qualify as Tier 2 capital of the Bank.

The Notes are expected to be issued on September 15, 2016 and will bear interest at a fixed rate of 3.625% per annum (paid semi-annually) to, but excluding, September 15, 2026, and at the 5-Year Mid-Swap Rate plus 2.205% thereafter (paid semi-annually) to, but excluding, September 15, 2031.

The Bank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem the Notes on September 15, 2026, in whole at par plus accrued and unpaid interest on not more than 60 nor less than 30 days’ notice to holders. Net proceeds from the issuance of the Notes will be used for general corporate purposes.

Well, that didn’t take long! On September 6 I reported ENB Acquiring Spectra: Ratings Effect Unclear, with DBRS placing ENB and W on Review-Developing.

Today, DBRS announced that it:

maintained the following ratings of Enbridge Inc. (ENB) Under Review with Developing Implications, where they were placed on September 6, 2016:

— ENB, Issuer Rating of BBB (high)
— ENB, Medium-Term Notes & Unsecured Debentures rated BBB (high)
— ENB, Cumulative Redeemable Preferred Shares rated Pfd-3 (high)
— ENB, Commercial Paper rated R-2 (high)
…
DBRS had the opportunity to meet with the senior management teams of both companies prior to the Transaction being announced to discuss details of the merger. DBRS was also provided with considerable documentation relating to the Transaction. After a review of the information provided and the September 6, 2016 announcement, followed by the conference call hosted by both companies, DBRS has determined that closing of the Transaction, as announced, will not impact the credit quality of ENB’s DBRS-rated subsidiaries (EIF, EPI, EGD and EEP) and has therefore confirmed these ratings.

POTENTIAL IMPACT ON ENB
DBRS believes that the Transaction, as proposed, before considering the potential sale of non-core assets, will be neutral for ENB’s overall business risk profile.
…
With respect to the financial risk profile, ENB stated that it expects to fund future growth in a manner that is consistent with maintaining a strong investment-grade credit profile with key target metrics of 15% funds from operations (FFO) to debt and five times debt-to-EBITDA, which DBRS views as falling well within the financial parameters of the existing rating and likely to be achieved in late 2018 or early 2019.
…
Consequently, DBRS expects to confirm all of ENB’s ratings with Stable trends in the event that the Transaction closes as contemplated. This expectation is based on a number of key DBRS assumptions, including no new material debt at the ENB level (aside from potential migration of Spectra Capital’s long-term debt to ENB over time) as a result of the Transaction, migration of the combined entity’s common dividend payout ratio towards the low end of the 50% to 60% range over the medium term, achievement of the contemplated improvement in credit metrics over the current planning period and no increase in structural subordination at the ENB level from currently contemplated levels. Changes to any of these, and other, key assumptions would cause DBRS to revisit the current ratings.

In addition:

DBRS Limited (DBRS) has today confirmed the ratings of Spectra Energy Capital, LLC (Spectra or the Company), Westcoast Energy Inc. (Westcoast), Union Gas Limited (Union Gas), Maritimes & Northeast Pipeline Limited Partnership (M&NP) and Express Pipeline Limited Partnership & Express Pipeline LLC (Express) with Stable trends. This rating action removes the ratings from Under Review with Developing Implications under which they were placed on September 6, 2016, as follows:
…
— Westcoast, First Preferred Shares – cumulative, redeemable rated Pfd-2 (low)
…
DBRS has determined that the Transaction will not impact the credit quality of Spectra and its DBRS-rated subsidiaries (Westcoast, Union Gas, M&NP and Express). DBRS notes that there are no changes contemplated to Spectra, its subsidiaries and counterparties, as a result of the Transaction. As announced, the financing for the Transaction is expected to be at the Enbridge Inc. level with no incremental borrowing at the Spectra entities. As a result, DBRS views the overall impact of the Transaction, as announced, on the stand-alone credit profiles of Spectra and its DBRS-rated subsidiaries as neutral and has therefore confirmed the ratings.

Affected issues are:

ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PR.A, ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y

W.PR.H, W.PR.J, W.PR.K

Brompton Group has announced:

Dividend Growth Split Corp. (the “Company”) is pleased to announce it is undertaking a treasury offering of class A and preferred shares. The final class A and preferred share offering prices will be determined so as to be non-dilutive to the net asset value per unit of the Company as of the pricing date, as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering.
The Company invests in a portfolio of common shares of high quality, large capitalization companies, which have among the highest dividend growth rates of those companies included in the S&P/TSX Composite Index. Currently, the portfolio consists of common shares of the following 20 companies:

Great-West Lifeco Inc.	The Bank of Nova Scotia	CI Financial Corp.
Shaw Communications Inc.	Industrial Alliance Insurance and Financial Services Inc.	Canadian Imperial Bank of Commerce
IGM Financial Inc.	TELUS Corporation	Manulife Financial Corporation
National Bank of Canada	Power Corporation of Canada	Canadian Utilities Limited
Sun Life Financial Inc.	Royal Bank of Canada	BCE Inc.
Enbridge Inc.	Bank of Montreal	The Toronto-Dominion Bank
Rogers Communications Inc.	TransCanada Corporation

The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share and to provide the opportunity for growth in the net asset value per class A share.
The investment objectives for the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions, currently in the amount of $0.13125 per preferred share, representing a yield on the original issue price of 5.25% per annum, and to return the original issue price to holders of preferred shares on the Company’s maturity date (November 28, 2019).

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC and Scotiabank and includes TD Securities Inc. BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Canaccord Genuity Corp., Desjardins Securities Inc., Raymond James Ltd., Echelon Wealth Partners Inc., Haywood Securities Inc., Industrial Alliance Securities Inc. and Mackie Research Capital Corporation.

Update, 2016-9-10: Priced and sized:

Dividend Growth Split Corp. (the “Company”) is pleased to announce that the Company’s treasury offering of class A and preferred shares has been priced at $6.75 per class A share and $10.25 per preferred share. The final class A and preferred share offering prices were determined so as to be non-dilutive to the most recently calculated net asset value per unit of the Company, as adjusted for dividends and certain expenses to be accrued prior to or upon settlement of the offering, and voluntary payment of certain costs of the offering by the Manager. Gross proceeds of the offering are expected to be approximately $25 million.

Enbridge Inc. has announced:

Highlights:

• •Creates largest energy infrastructure company in North America with C$1651 billion (US$127 billion) enterprise value
• •Anticipated 15 percent annualized dividend increase in 2017 and annual 10-12 percent dividend growth thereafter through 2024. Industry leading secured project and risked development inventory of C$74 billion (US$57 billion) with C$26 billion (US$20 billion) currently in execution
• •Complementary and diversified asset base to increase customer service offerings and optionality
• •Enhanced ability to pursue projects that will improve customer access and service
• •Strengthens investment grade balance sheet
• •96 percent of cash flow generated by cost-of-service, take-or-pay, or fee-based contracts
• •Industry-leading total return potential

Enbridge Inc. (TSX:ENB) (NYSE:ENB) (Enbridge) and Spectra Energy Corp (NYSE:SE) (Spectra Energy) today announced that they have entered into a definitive merger agreement under which Enbridge and Spectra Energy will combine in a stock-for-stock merger transaction (the “Transaction”), which values Spectra Energy common stock at approximately C$37 billion (US$28 billion), based on the closing price of Enbridge’s common shares on September 2, 2016. The combination will create the largest energy infrastructure company in North America and one of the largest globally based on a pro-forma enterprise value of approximately C$165 billion (US$127 billion). The Transaction was unanimously approved by the Boards of Directors of both companies and is expected to close in the first quarter of 2017, subject to shareholder and certain regulatory approvals, and other customary conditions.

DBRS has announced that it:

has today placed all ratings of Enbridge Inc. (ENB), Enbridge Income Fund (EIF), Enbridge Pipelines Inc. (EPI), Enbridge Gas Distribution Inc. (EGD) and Enbridge Energy Partners, L.P. (EEP) Under Review with Developing Implications, as follows:
…
ENB plans a 15% annualized dividend increase in 2017 and annual 10% to 12% dividend growth thereafter through 2024. This is expected to result in a common dividend payout of 50% to 60% of available cash flow from operations (ACFFO), compared with ENB’s current 50% target payout ratio. ENB also plans to divest of approximately $2 billion of non-core assets over the next 12 months to provide additional financial flexibility. Annual run-rate synergies of $540 million (USD 415 million) are expected, the majority of which is expected to be achieved in the latter part of 2018. In addition, approximately $260 million (USD 200 million) of tax savings are anticipated commencing in 2019. On a combined basis, ENB will have a secured project and risked development inventory of $74 billion (USD 56 billion) currently in execution, with a very strong contractual profile.

With respect to the financial risk profile, ENB stated that it expects to fund future growth in a manner that is consistent with maintaining a strong investment-grade credit profile with key target metrics of 15% funds from operations (FFO) to debt and five times debt-to-EBITDA. DBRS notes that both ENB and SEC have significant capex programs over the medium term, with ENB’s being back-end loaded and SEC’s being front-end loaded, with the combination smoothing out the overall pattern somewhat over the 2017 to 2019 period. DBRS expects near-term pressure on ENB’s credit metrics to continue as a result of assumption of SEC’s existing debt and the relatively high near-term capex ($12.9 billion in 2017), partly offset by issuance of substantial common equity. Execution risk with respect to generating expected proceeds from the proposed asset sales is also present.

Spectra’s subsidiary Westcoast got a passing mention from DBRS:

DBRS Limited (DBRS) has today placed the ratings of Spectra Energy Capital, LLC (Spectra Capital, or the Company) and the ratings of the Company’s DBRS-rated subsidiaries Under Review with Developing Implications. The entities covered under this rating action are:
…
— Westcoast Energy Inc., First Preferred Shares – cumulative, redeemable rated Pfd-2 (low)
…
DBRS will further review the potential impacts of the Transaction on Spectra Capital’s ratings and the ratings of Company’s DBRS-rated subsidiaries, with an aim to resolve the Under Review – Developing Implications status.

S&P took a more cheerful view:

• •Diversified energy companies Spectra Energy Corp. and Enbridge Inc. have announced an agreement whereby Enbridge will acquire Spectra in a stock-for-stock merger transaction totaling C$37 billion (US$28 billion). The combined company will be the largest energy company in North America and one of the top five global energy companies based on a pro forma enterprise value of about C$165 billion (US$127 billion).
• •We are placing our ratings on Spectra and its financing subsidiary Spectra Energy Capital LLC.on CreditWatch with positive implications.
• •At the same time, we placed the ratings on master limited partnership Spectra Energy Partners LP and operating subsidiary Texas Eastern Transmission L.P. on CreditWatch with positive implications.
• •We expect to resolve the CreditWatch listing when the transaction closes sometime in the first quarter of 2017, at which time we expect to raise the rating on Spectra Energy Corp. and Spectra Energy Partners and Texas Eastern one notch to ‘BBB+’, which is in line with consolidated group credit profile of Enbridge Inc.

…
“The CreditWatch listing on Spectra and its operating subsidiaries reflect our expectation that we will raise the ratings in line with those of Enbridge Inc.,” S&P Global Ratings analyst Michael Grande said. “Spectra will become a wholly owned subsidiary of Enbridge, and we expect Spectra’s 2017 consolidated EBITDA of about US$3.2 billion will account for about 40% of the combined company’s pro forma cash flow.”

… and, with respect to Westcoast:

• •On Sept. 6, Enbridge Inc. announced a merger with Spectra Energy Corp. in a share exchange transaction. When the merger’s completed, Spectra subsidiary Westcoast Energy Inc. will become a wholly owned subsidiary of Enbridge Inc.
• •We are placing our ratings, including our ‘BBB’ long-term corporate credit rating, on CreditWatch with positive implications.
• •The CreditWatch placement reflects our view that once completed, Westcoast Energy could be considered core to Enbridge Inc., which would lift the rating.

…
“The transaction would introduce group support from Enbridge, currently a higher rated entity than existing parent Spectra Energy,” said S&P Global
Ratings credit analyst Gerald Hannochko.

The CreditWatch placement reflects our view that if the transaction closes as expected, Westcoast would likely become core to Enbridge Inc., and the rating and outlook would be equalized with those on Enbridge Inc.

An upgrade is likely if the transaction is completed, and if we assess Westcoast’s group status as core.

Part of the apparent disagreement is that S&P rates Enbridge preferreds as P-2(low) and Westcoast as P-3(high), inverting the ranking of DBRS, which has Enbridge at Pfd-3(high) and Westcoast at Pfd-2(low). Credit ratings are not an exact science!

Affected issues are:

ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PR.A, ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y

W.PR.H, W.PR.J, W.PR.K

Update, 2016-9-7: Moody’s affirms Ba1 Preferred rating and maintains negative outlook:

Moody’s Investors Service has affirmed the Baa2 senior unsecured ratings for Enbridge Inc. (Enbridge) and its subsidiaries Enbridge Income Fund (EIF) and Enbridge Energy Limited Partnership (EELP).
…
“The transaction is credit positive for Enbridge because Spectra brings increased size and scale, and helps create the largest midstream company in North America with a more diverse asset portfolio,” said Gavin MacFarlane, Moody’s Vice President — Senior Credit Officer. “But the company’s combined leverage remains elevated. We are maintaining a negative rating outlook for Enbridge until we see the company execute the transaction, the large capital program in 2017 and deleveraging plans.”
…
Moody’s maintains a negative rating outlook for Enbridge based on the company’s very high levels of leverage. As of June 2016, Enbridge’s ratio of debt-to-EBITDA was 7.2x, while Spectra’s was about 5.8x and on a combined last twelve months basis their leverage was about 6.7x. The higher combined leverage is owing to the larger size of Enbridge relative to Spectra, as Spectra accounts for roughly 40% of the combined entities’ EBITDA. Moody’s continues to expect the financial metrics of both companies to improve as they progress with their capital programs. At the same time, Enbridge has announced $2 billion of asset monetizations that Moody’s expects will incrementally reduce leverage at ENB. Moody’s views the prospect of asset monetizations as credit positive and considers this as a meaningful change from a financial strategy perspective, as this represents the first time this decade that management has sought to sell assets out of the group to fund its capital program. The combination of the two entities provides more levers for management to pull in order to manage pressure on credit quality.

The negative outlook on ENB reflects its high leverage and execution risk associated with its plan to delever in a timely fashion. ENB has a plan to do so by the end of 2017 and a number of options at its disposal to reduce leverage. However, if the company fails to execute and debt-to-EBITDA of about 5.5x is unlikely to be achieved by the end of FY2017, the company could be downgraded.