PrefBlog

Westcoast Energy, proud issuer of W.PR.H and W.PR.J, was confirmed at Pfd-2(low) by DBRS:

The rating confirmations reflect Westcoast’s strong business risk profile, underpinned by low-risk, fee-based, mostly regulated operations typically accounting for nearly 90% of earnings. Its financial ratios profile has also remained reasonable for the rating category.

In June 2013, DBRS placed Spectra Energy Capital, LLC (Spectra, rated BBB (high); 100% owner of Westcoast) under review with negative implications. This rating action follows the announcement that Spectra intends to drop down all of its remaining U.S. Transmission and Storage Assets to Spectra Energy Partners (SEP; a master limited partnership controlled by Spectra) by the end of 2013 (for details, refer to DBRS press release, June 12, 2013). Since DBRS rates Westcoast on a stand-alone basis, given its demonstrated independent access to Canadian debt markets and track record of maintaining a prudent financial risk profile, this rating action does not affect current ratings for Westcoast.

DBRS expects Westcoast’s significant capex program, $1 billion in 2012 and a projected $900 million for 2013, to remain elevated in the medium term, resulting in negative free cash flows and a pressuring of its credit ratios, as incremental financing will likely come from increased long-term debt issuance. While the Company’s capex program is substantial, spending is allocated to low-risk transmission, gathering and processing projects in the liquids-rich gas basins of western Canada, which will continue to support Westcoast’s relatively strong business risk profile. DBRS believes the Company will benefit over the medium to long term from strong exploration and unconventional drilling activity in western Canada, given the Company’s planned expansion projects, with long-term contractual commitments being placed into service in stages through 2014. Increasing earnings and cash flow from expansions placed in service to date have resulted in relatively strong credit ratios. Although Westcoast’s credit metrics are underpinned by mostly low-risk and regulated operations, consolidated metrics will likely continue to be pressured over the medium term as a result of its significant growth capex, but will likely remain within the parameters of the current ratings.

S&P has a different view on the independence of the Spectra and Westcoast ratings and has the issues on Credit Watch Negative.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts off 3bp, FixedResets up 8bp and DeemedRetractibles gaining 2bp. Volatility was high, with a surprisingly (considering the overall market) lengthy Performance Highlights table fairly evenly split between winners and losers. Volume was low.

This entry was posted on Tuesday, July 23rd, 2013 at 1:12 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.