S&P Revises ENB Outlook to Stable

Standard and Poor’s has announced:

  • We are revising our outlook on Enbridge Inc. (EI), Enbridge Pipelines Inc., and Enbridge Gas Distribution Inc. to stable from negative
  • We are also affirming our ratings, including our ‘A-‘ long-term corporate credit ratings, on the three.
  • The outlook revision reflects our view of the lower probability of funds from operations-to-debt falling below 13% in the next two years.
  • Nevertheless, we expect forecast credit metrics to remain weak for the ratings, primarily as a result of EI’s ongoing large capital program that could exceed C$6 billion in 2012.
  • We expect Enbridge and its subsidiaries to manage their balance sheets and credit metrics in part through issuing preferred shares, asset dropdowns, and a reduction of its ownership stake in its sponsored
    investments, consistent with recent actions.

  • We have not changed our view that the competitive toll settlement, which went into affect July 1, 2011, has marginally increased EI’s business risk.

The stable outlook on EI reflects our view that credit metrics, while weak for the ratings are expected to remain above established thresholds. A deterioration in adjusted last-12-month FFO-to-debt below 13% would likely result in a downgrade. In addition, deterioration in the business risk profile, either through a single event or a more gradual shift, could lead us to lower the ratings. Without a material reduction in leverage, an upgrade is unlikely.

The company was affirmed by DBRS today:

The improvement in ENB’s credit metrics since the year-end 2008 trough reflects rising earnings and cash flow from projects placed in service combined with lower capex and investments that have led to smaller free cash flow deficits and financing requirements over the subsequent 33-month period. Net proceeds from the issuance of preferred shares in late Q3 2011 ($0.5 billion) and of common equity in the form of reinvested dividends ($0.6 billion since year-end 2008) reduced the Company’s incremental debt financing needs relative to previous levels. ENB’s credit metrics in the nine months ending September 30, 2011 (9M 2011) were stronger than in 9M 2010, reflecting higher net income (before extraordinary items) and the full period benefit of cash earnings from two major projects placed into service in 2010 (the Alberta Clipper Project (Alberta Clipper) on April 1, 2010, and Southern Lights Diluent Import Pipeline (Southern Lights) on July 1, 2010) compared with cash earnings since the in-service dates and non-cash allowance for equity funds used during construction (AEDC) and all of the associated debt in 9M 2010.

Enbridge has three issues of preferred shares outstanding: ENB.PR.A (5.5% PerpetualPremium, currently callable at par), and the FixedResets ENB.PR.B (4.00%+240) & ENB.PR.D (4.00%+237).

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