UPDATE: Enbridge, Subsidiaries Placed on CreditWatch Negative by S&P (ENB) (EEP)

Standard & Poor's Ratings Services today said it placed its ratings on Calgary, Alta.-based Enbridge Inc. (NYSE: ENB), Enbridge Pipelines Inc. (EPI), Toronto-based Enbridge Gas Distribution Inc. (EGD) and Houston-based Enbridge Energy Partners (NYSE: EEP) on CreditWatch with negative implications.

The CreditWatch placements reflect our assessment of the existing weak forecast financial metrics at parent Enbridge, combined with the announced change in dividend policy and the dropdown of assets to subsidiary Enbridge Income Fund (EIF). Enbridge intends to increase its dividend payout ratio to 75%-85% of adjusted net income, from 60%-70%, effective March 2015. In addition, the dropdown plan covers US$17 billion of assets, comprising the Canadian liquids pipeline and renewable energy portfolio. We expect the EIF transaction to close in mid-2015. Standard & Poor's does not rate EIF.

"We believe that there is a potential for financial metrics to weaken further due to the additional dividend expense, depending on the ultimate financing strategy," said Standard & Poor's credit analyst Gerry Hannochko. "As well, the dropdown to EIF could raise the issue of subordination of debt at the Enbridge level," Mr. Hannochko added.

In addition, the company is contemplating transferring Enbridge's U.S.-based liquids pipeline assets to subsidiary EEP.

On Nov. 21, 2014, we revised the outlook on the Enbridge group to negative based on weak forecast financials that we assess to be below the threshold for the "significant" financial risk profile category.

With the application of our group rating methodology, we assess the group credit profile to be equal to that of Enbridge, at 'a-'. Because we view EPI and EGD to be "core" to the group, we have equalized our ratings on them with those on Enbridge. We view EEP to be "highly strategic" to the group, which places the corporate credit rating one notch below the group credit profile.

We expect to resolve our CreditWatch placement on the companies within 90 days of the transaction's announcement. We could affirm or lower the ratings on Enbridge, which would affect the ratings on subsidiaries EGD, EPI, and EEP.

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