Spectra Energy (SE) Ratings Affirmed by S&P Amid DCP Midstream (DPM) Downgrade

Standard & Poor's Ratings Services said today that the ratings and outlooks for Spectra Energy Corp. and its subsidiaries, Spectra Energy Capital LLC and Spectra Energy Partners L.P., are unaffected after we lowered the ratings on Spectra's 50% owned joint venture DCP Midstream LLC and DCP Midstream Partners L.P. (NYSE: DPM) to 'BB' from 'BBB-'. The rating action on DCP Midstream stemmed from our assumptions for materially weaker consolidated financial measures due to significantly lower natural gas liquids prices.

In our view, Spectra's decision to forego dividends from DCP Midstream through 2017 will lead to only modestly weaker consolidated credit measures compared with our previous expectations. We believe Spectra will achieve a funds from operations (FFO) to debt ratio of roughly 13% for the next two years, which is at the lower end of range for a "significant" financial risk profile, compared with our previous expectations of FFO to debt between 14% and 15%. In addition, DCP's cash flow contribution to Spectra's consolidated cash flow is small, at about 7% of 2014 EBITDA, and in our opinion is not a significant driver of Spectra's credit measures. We expect DCP's future contribution to Spectra's EBITDA to be modest as Spectra focuses on organic growth projects that generate stable, fee-based cash flow at Spectra Energy Partners.

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