PrefBlog

DBRS has announced that it:

has today downgraded Veresen Inc.’s (Veresen or the Company) Issuer Rating and Senior Unsecured Notes rating to BBB from BBB (high) and its Preferred Shares rating to Pfd-3 from Pfd-3 (high), following the closing of Veresen’s acquisition of 50% convertible preferred interest in Ruby pipeline system (Ruby). Concurrently, the ratings have been removed from Under Review with Negative Implications, having been placed as such in September 2014. (Please refer to DBRS press release dated September 23, 2014, for details). The trend on the ratings has been changed to Stable.

The USD 1.425 billion acquisition, including transaction costs, was financed with CAD 920 million of Veresen common equity and CAD 727 million of bank debt. This was substantially in line with DBRS expectations, as noted in the previous press release. DBRS had previously noted that the acquisition will have a negative impact on the Company’s business risk profile and a moderately negative impact on its financial risk profile. Due to low average throughput utilization (55%, compared to 71% contracted), Ruby is exposed to re-contracting risk when the majority of contracts (approximately 65%) expire in 2021, and the pipeline’s capacity may not be re-contracted at current tolls, volumes or duration. This is largely a reflection of the weak natural gas pricing environment and competitive landscape. In addition, Company’s leverage is expected to be moderately higher and coverage ratios are expected to weaken due to the higher debt levels resulting from the acquisition.

The Review-Negative was previously reported on PrefBlog.

Veresen is the proud issuer of VSN.PR.A and VSN.PR.C, both FixedResets.

S&P affirmed its ratings of P-3(high) in September:

• •We are affirming our ratings, including our ‘BBB’ long-term corporate credit rating, on Veresen Inc. following the announcement that it has acquired 50% of the Ruby pipeline through convertible preferred shares.
• •The transaction adds contracted capacity and tenor to Veresen’s mix of pipeline assets; however, it also modestly decreases forecast financial metrics.
• •The stable outlook reflects our expectation that the company will continue to focus on adding fee-for-service midstream and long-term contracted power generation.

…
The stable outlook reflects our expectation that Veresen will continue to focus on adding fee-for-service midstream and long-term contracted power generation. The outlook also reflects our assumption that the total equity component for financing the transaction includes the 15% overallotment, and that the dividend reinvestment program (DRIP) remains in place to reduce leverage over time. Although the transaction modestly improves contract tenor and diversification away from the Alliance pipeline, financial metrics are compressed and we expect to see debt reduction, likely through DRIPs, to maintain the outlook.

We could lower the ratings if AFFO-to-debt drops to the lower end within the “significant” range using the medial table. In addition, if the contract profile at Alliance after 2015 significantly increases the cash flow variability or business risk to Veresen, we could lower the ratings.

The uncertainty surrounding the Alliance pipeline recontracting is likely to constrain the ratings for the next two years. An upgrade is unlikely in that time without AFFO-to-debt staying above 23% and the contract profile improving at Alliance.

This entry was posted on Thursday, November 6th, 2014 at 8:44 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.