Moody's Downgrades Enbridge (ENB), Enbridge Energy Partners (EEP) to 'Baa2'

Moody's Investors Service has downgraded the senior unsecured ratings for Enbridge Inc. (NYSE: ENB) to Baa2 from Baa1; for Enbridge Energy Partners L.P. (NYSE: 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 rating downgrades for Enbridge, EEP and EELP reflect the announced changes to the corporate structure and distribution policy, which we see as a permanent shift in policy towards favoring shareholder rewards at the expense of creditors." said Gavin MacFarlane, Vice President/Senior Analyst. "The rating affirmation for EIF reflects the independence of that subsidiary from its parent."

RATINGS RATIONALE

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.

The affirmation of EIF at Baa2 reflects our view that its stand-alone credit profile has strengthened with its greater footprint and cash-generating ability, and it also incorporates structural subordination at the EIF level. Previously, EIF's Baa2 rating incorporated one notch of support from parent ENB. Overall, the size and scale of EIF increases significantly as consolidated assets increase to more than C$22bn from about C$2bn and as consolidated EBITDA increases to more C$2bn from more than C$400 million. The business risk profile of EIF materially improves due to the stronger business risk profiles of EPI and EPA and their large contribution to EIF's consolidated EBITDA. Consolidated EIF is forecast to have high leverage until it completes about C$8.9bn of projects in 2017, upon which time debt/EBITDA is expected to improve to about 5x. The company's policy to payout 90% of available cash flow limits its financial flexibility. The debt at EIF is structurally subordinated to debt at EPI and EPA which combined are forecast to have about C$13bn of debt outstanding at the end of 2015. The structural subordination is largely driven by EPI, which is forecast to account for about 2/3 of EIF's consolidated EBITDA. The vast majority of the company's cash flow is residual cash flow from its levered subsidiaries.

The downgrade of EEP was based solely on the downgrade of parent ENB. Previously, our Baa2 rating incorporated a low Baa stand-alone credit profile and an expectation of some support from ENB.

Today's rating action is based on our understanding that the transaction will close in or around September of 2015. Management has indicated it is reviewing the possibility of restructuring its United States assets however it is too early to determine what impact this will have on credit quality.

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.

EIF: 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. Following the completion of the capital program on time and budget, an improvement in debt/EBITDA to the 4-5x range on a sustained basis could result in an upgrade.

EIF: What could change the rating down

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

EEP: What could change the rating up

A continuation of improvement to its business risk profile through divestiture and reduction of support to MEP, or progress on its capital program and acquisitions of EELP interests from Enbridge Inc. could result in an upgrade. However, we would expect financial metrics to improve as well. EEP could be upgraded if it achieved proportionately consolidated debt/EBITDA near 4.5-5x on a sustained basis.

EEP: What could change the rating down

EEP could be downgraded if proportionately consolidated financial metrics remain weak, including debt/EBITDA staying above 5.5x over the next 12 months. While not expected, a deterioration in the company's business risk profile or a reduction in support from parent ENB could also lead to a downgrade.

The principal methodology used in these ratings was Global Midstream Energy published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Rating list:

Downgrades:

..Issuer: Enbridge Energy Limited Partnership

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

....Senior Unsecured Shelf, Downgraded to (P)Baa2 from (P)Baa1

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

..Issuer: Enbridge Energy Partners, L.P.

.... Issuer Rating, Downgraded to Baa3 from Baa2

....Subordinated Shelf, Downgraded to (P)Ba1 from (P)Baa3

....Senior Unsecured Shelf, Downgraded to (P)Baa3 from (P)Baa2

....Senior Unsecured Commercial Paper, Downgraded to P-3 from P-2

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa3 from Baa2

....Junior Subordinated Regular Bond/Debenture, Downgraded to Ba1 from Baa3

..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

Affirmations:

..Issuer: Enbridge (U.S.) Inc.

....Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Enbridge Income Fund

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Senior Unsecured Shelf, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debentures, Affirmed Baa2

Outlook Actions:

..Issuer: Enbridge Energy Limited Partnership

....Outlook, Changed To Stable From Negative

..Issuer: Enbridge Energy Partners, L.P.

....Outlook, Changed To Stable From Negative

..Issuer: Enbridge Inc.

....Outlook, Changed To Stable From Negative

..Issuer: Enbridge Income Fund

....Outlook, Changed To Stable From Developing

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