PrefBlog

DBRS has announced that it:

has today placed Veresen Inc.’s (Veresen or the Company) Issuer Rating and Senior Unsecured Notes rating of BBB (high) and its Preferred Shares rating of Pfd-3 (high) Under Review with Negative Implications. If the planned acquisition of 50% convertible preferred interest in Ruby pipeline system (Ruby) proceeds as expected, Veresen’s overall business risk profile is expected to weaken and its financial risk profile is expected to deteriorate modestly. As a result, Veresen’s ratings will likely be downgraded by one notch following the completion of the acquisition.
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DBRS notes that the Acquisition could add a potential layer of uncertainty around re-contracting to the Company’s business risk profile. The average physical throughput on Ruby in the past three years indicates that only 55% of the pipeline capacity is utilized, largely reflecting the weak natural gas pricing environment and competitive landscape. DBRS is of the opinion that Ruby is exposed to re-contracting risk when the majority of contracts (approximately 65%) expire in 2021, as the pipeline’s capacity may not be re-contracted at current tolls, volumes or duration.
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Veresen plans to initially finance the Acquisition with approximately: 1) $800 million in equity (with a 15% over allotment option), 2) $750 million in debt from new credit facilities and 3) the balance from an existing revolving credit facility. Veresen intends to refinance the acquisition-related borrowings over the course of the next 12 months through various capital market instruments as well as with ongoing proceeds received from equity issued in connection with Veresen’s Premium Dividend and Dividend Reinvestment Plan.
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Based on a pro forma of the Acquisition, DBRS estimates that the credit metrics will weaken for Veresen (non-consolidated) with cash flow-to-interest at 5.3 times (x) (7.9x in the last 12 months (LTM) Q2 2014), higher debt-to-capital at 38.2% (35.2% at Q2 2014) and weaker cash flow-to-total debt at 26.0% (34.7% LTM Q2 2014). The significant increase in debt also reduces the Company’s financial flexibility and could affect its ability to meet large capital expenditure needs in the future.

Veresen is the proud issuer of VSN.PR.A and VSN.PR.C, both FixedResets currently rated Pfd-3(high).

This entry was posted on Tuesday, September 23rd, 2014 at 10:15 pm and is filed under Issue Comments. 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.