Moody’s Downgrades ENB Preferreds To Junk

Moody’s Investors Service has announced that it [emphasis added]:

has downgraded the senior unsecured ratings for Enbridge Inc. (ENB) to Baa2 from Baa1; for Enbridge Energy Partners L.P. (EEP) to Baa3 from Baa2 and for Enbridge Energy Limited Partnership (EELP) to Baa2 from Baa1. Moody’s affirmed the Baa2 senior unsecured rating on Enbridge Income Fund (EIF) and the Prime-2 commercial paper rating for Enbridge (U.S.) Inc. For all these entities, the rating outlooks are stable. For a complete list of Moody’s ratings actions see the end of this press release.

The downgrade of ENB reflects the reduction in financial flexibility following the company’s change in its distribution policy, the increased level of structural subordination at the ENB level, principally due to the transfer of Enbridge Pipelines Inc.(EPI) and Enbridge Pipelines Athabasca (EPA) to EIF and the ongoing capital structure complexity within the group. Dividends per share at ENB will increase by 33% in 2015, because the company changed its dividend policy to 40-50% of cash flow from operations from 60-70% of earnings. We see ENB implementing more shareholder-friendly policies at a time when the group continues to move forward with its large capital program, with increasing execution risk. Structural subordination is also increasing because EPI and EPA, the assets being transferred to EIF, will no longer be held directly by ENB. Cash flow from these assets must service obligations at EIF, including EIF’s debt, before servicing ENB creditors. This more than offsets the transfer of interests of EEP to ENB from EPI.

Rating Outlook

The outlook for the group is stable.

ENB: What could change the rating up

Given the large capital program and high leverage, an upgrade is unlikely until the completion of the capital program in 2017. Beyond that, we could raise the ratings if proportionately consolidated Debt/EBITDA is forecast in the 4-5x range on a sustained basis.

ENB: What could change the rating down

A failure to execute the capital program on time and budget or a negative deviation from our proportionately consolidated financial forecast could result in a downgrade. A deterioration in the business risk profile of the company or proportionately consolidated Debt/EBITDA sustained above 5.5x following the completion of the large capital program could also lead to a downgrade.

..Issuer: Enbridge Inc.

…. Issuer Rating, Downgraded to Baa2 from Baa1

….Preferred Stock Shelf, Downgraded to (P)Ba1 from (P)Baa3

….Senior Unsecured Shelf and MTN program, Downgraded to (P)Baa2 from (P)Baa1

….Subordinated Shelf, Downgraded to (P)Baa3 from (P)Baa2

….Pref. Stock Preferred Stock, Downgraded to Ba1 from Baa3

….Pref. Stock Preferred Stock, Downgraded to (P)Ba1 from (P)Baa3

….Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa2 from (P)Baa1

….Senior Unsecured Regular Bond/Debentures, Downgraded to Baa2 from Baa1

And yes, I checked … Ba1 is not investment grade by Moody’s definition.

This follows the downgrade by S&P to P-2(low) (still investment grade!) which was also with respect to the Dropdown.


Hat-tip to Assiduous Reader gsp for bringing this development to my attention!

Leave a Reply

You must be logged in to post a comment.