S&P Revises Outlook on ENB to Negative

Standard & Poor’s has announced:

  • •We are revising our outlook on Calgary, Alta.-based Enbridge Inc. and Enbridge Pipelines Inc. (EPI), and Toronto-based Enbridge Gas Distribution Inc. (EGD) to negative from stable.
  • •We are also affirming our ‘A-‘ corporate credit rating on the companies.
  • •The negative outlook on Enbridge reflects our assessment of weak forecast financial metrics at the parent level.
  • •We assess EPI and EGD to be “core” under our group rating methodology, so the negative outlook on the companies reflects that on Enbridge.

We view Enbridge’s financial risk profile as “significant.” The continuing large capital program to expand existing and build new liquids pipelines will continue to pressure financial metrics for the next several years. We forecast that financial metrics could dip below our 13% adjusted funds from operations (AFFO)-to-debt downgrade threshold under our forecast capital expenditures and financing plans. The company has brought large scale capital projects in service on time and on budget, and we expect this to continue. Financial policy has generally been credit supportive, although growing capital expenditures from new projects, and the parents support of subsidiary companies with internal equity financing, have shifted to what we believe is a more neutral stance.

The negative outlook on Enbridge reflects our view that forecast credit metrics appear to be weak, and more indicative of an “aggressive” financial risk policy than the current significant. The company has been working through an extremely large capital program in 2014, and while 2015-2016 capex is not as large, we still expect it to continue stressing financial metrics, leaving little room for larger capital programs, or potential delays to project in-service dates. We will continue to monitor Enbridge’s financial policy in the next year. The negative outlook on the subsidiaries reflects that on the parent.

Maintaining AFFO-to-debt below 13% would likely result in a downgrade. Deterioration in the business risk or a failure to deliver the capital program on time and budget could also result in a lower rating.

An outlook revision to stable would require AFFO-to-debt to stay above 13% consistently during our forecast period.

Enbridge Inc. is the issuer of (deep breath) ENB.PR.A (Straight Perpetual), 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, ENB.PF.A, ENB.PF.C, ENB.PF.E and ENB.PF.G (FixedResets) and ENB.PR.U, ENB.PR.V, ENB.PF.U and ENB.PF.V (US-Pay FixedResets).

All told, I believe that total issuance comprises roughly 10% of the Canadian preferred share market, virtually all of which has come out since the issue of ENB.PR.B just over three years ago. A downgrade to junk would certainly make the market a bit more interesting for a while!

2 Responses to “S&P Revises Outlook on ENB to Negative”

  1. coolmesh says:

    Just curious…for Americans with brokerage accounts in Canada and trading on the TSX is there any prohibition from buying NVCC compliant Rate Resets? Seems there shouldn’t be.

  2. jiHymas says:

    Let me put it this way: I’ve never heard of such a restriction and cannot imagine why one would exist.

    But I am not an expert in either Canadian brokerage compliance or US securities law.

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