NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has affirmed the outstanding ratings of Spectra Energy
Capital, LLC (SEC) and Spectra Energy Partners, LP (SEP) at 'BBB' and
Texas Eastern Transmission, LP (TETLP) at 'BBB+'. The Rating Outlooks on
all entities are Stable.
These actions affect roughly $3.6 billion of debt at SEC, $3.1 billion
in debt at SEP, and $1.6 billion of long-term debt at TETLP as of March
31, 2014. A full list of ratings is provided at the end of this release.
SEC's ratings and Outlook are supported by the size, diversity and
quality of its natural gas-related infrastructure asset base that is
linked to most major producing basins in the U.S. and Canada. The
ratings recognize that SEC's debt is structurally subordinated to debt
at its operating subsidiaries. Fitch believes that each of the operating
subsidiaries should provide more than adequate support for SEC's
obligations. The ratings reflect the earnings and cash flow stability
driven by SEC's high percentage of fee-based and capacity reservation
revenue derived from the company's operations, principally SEP, Union
Gas, a gas distribution company in Ontario, and SEC's Western Canadian
gathering, processing, and transmission operations.
SEP's ratings and Outlook reflect the earnings and cash flow stability
driven by SEP's high percentage of fee-based and capacity reservation
revenue derived from the company's operations. SEC retains a roughly 84%
interest in SEP including the 2% GP interest. As such SEC has
operational and financial control of SEP (including the ability to set
the distribution level and dictate any capital structure decisions) and
receives the majority of the cash flows from the dropdown assets through
limited partner (LP) and general partner (GP) distributions. Fitch
expects that any need for growth capital expenditures and dividend
payments over the next several years will be funded with a balanced
combination of cash from operations, equity from SEP, and debt.
TETLP's ratings and Stable Outlook reflect the strength of the company's
credit profile and the low level of business risk associated with its
FERC-regulated interstate pipeline operations. On a stand-alone basis,
the pipeline system has the profile of a higher rated entity with
moderate debt levels and solid, consistent earnings and cash flow. As a
subsidiary of SEP, however, the ratings of TETLP remain linked to that
of its parent. TETLP and other U.S. operating companies are expected to
remain reliant on SEP's credit facility for short-term liquidity needs.
Leverage metrics are likely to be elevated over the next several years
as SEC and SEP work through a significant growth capital spending
program. Fitch believes SEC's and SEP's core assets will provide the
stability needed to maintain credit quality, and the incremental EBITDA
provided as growth projects come online should result in improved
metrics, more in line with peers. Fitch expects debt-to-EBITDA on a
consolidated basis at SEC to be around 5.0x for 2014 and 2015, but this
should improve as it works through its large spending budget and new
projects come online. SEP's leverage is expected to be between 4.0x to
4.5x for 2014 - 2016. Should leverage rise above 4.5x on a sustained
basis Fitch would likely take a negative rating action.
KEY RATINGS DRIVERS
Stable, Predictable Cash Flows: SEC's ratings reflect the diversity and
quality of its asset base and the high percentage of cash flows derived
from its holdings in pipeline, storage and gas distribution assets. In
addition to SEP, a significant portion of SEC's EBITDA comes from its
low business risk Canadian operations, Union Gas and its Western
Canadian gathering and processing. Fitch believes that Union Gas is a
very low business risk gas distribution business operating within a very
stable regulatory environment where it can make timely recovery of
operating and capital expenditures and has a market dominant position
within a strong service territory within the Ontario Province. The
Western Canadian operations are located in some of the most productive
fields in Canada and have a strong fee based and reservation charge
Fee-based MLP: SEP's ratings reflect earnings and cash flow stability
driven by its high percentage of fee-based and capacity reservation
revenue derived from the company's operations. SEP owns and operate a
large diverse portfolio of gas, NGL, and oil transportation and storage
assets with revenue assured by a high percentage of capacity reservation
contracts which are largely volume and commodity price insensitive. Over
90% of SEP's revenue and cash flow will come from volume and price
insensitive take or pay or fee based contracts with a weighted average
contract life of nine years. This provides a fair amount of certainty
around SEP's ability to meet obligations and provide distribution growth
to unitholders. SEP's assets access both emerging supply areas and
higher growth demand areas, are hard to replicate and should provide
solid upside for SEP from an organic growth perspective.
Large-Scale Capex Program: The ratings consider that SEC and SEP are in
the middle of a large-scale capital expenditure program and credit
metrics will remain weak on an interim basis. Fitch believes that the
inherent risks of the capital program, however, are partially mitigated
by the focus on lower business risk projects, such as pipeline projects,
which are generally backed by firm capacity commitments under long-term
Strategically Located, Diverse Asset Base: SEC's asset base represents
one of the largest natural gas infrastructure businesses in North
America. The company's assets are strategically located to capitalize on
the significant investment and growth in natural gas production in
recent years from most major North American producing basins. The
company's pipelines are also situated to capitalize on future growth in
growing production basins, such as the Marcellus/Utica and Eagle Ford
Adequate Liquidity Position and Financial Flexibility: On a consolidated
basis SEC has $3 billion of committed U.S. facilities and C$700 million
of Canadian facilities. Availability under its combined credit
facilities as of March 31, 2013 was $2.7 billion. SEC's and SEP's lines
of credit are primarily used to back their CP programs. SEC's credit
facility requires Spectra Energy Corp consolidated debt-to-total
capitalization ratio, as defined in the agreement, to not exceed 65%.
This ratio was 57% at March 31, 2014. SEP's credit facility contains a
covenant that requires SEP to maintain a ratio of total debt-to-adjusted
EBITDA, as defined in the credit agreement, of 5.0x or less (or 5.5x or
less for 3 quarters immediately following certain acquisitions). This
ratio was 4.1x as of March 31, 2014.
Credit concerns include the structural subordination of SEC's debt to
approximately $8 billion of subsidiary debt. Additionally, SEC remains
exposed to commodity price risk through its 50% interest in DCP
Midstream, LLC (DCP; Fitch IDR 'BBB', Negative Outlook) and foreign
currency risk from investments and operations in Canada. To mitigate
risks associated with foreign currency fluctuations, investments are
naturally hedged through debt denominated or issued in the foreign
What could lead to a negative rating action:
--Sustained worsening of credit ratios due to increased leverage or poor
operating performance. Distribution coverage at SEP below 1.0x and
sustained leverage above 4.5x would likely lead to a negative ratings
action. For TETCO any negative rating action at SEP would likely lead to
a negative ratings action at TETCO.
--For SEC, on an adjusted EBITDA basis (inclusive of distributions from
non-consolidated affiliates) Fitch expects DEBT/EBITDA to be 5.1x in
2014 and drop below 5.0 times in outer years. Failure of SEC's
consolidated debt/EBITDA to improve below the 5.0x as growth projects
come online could result in a downgrade.
--Significant speculative building or large scale leveraging third party
--Any change in management stated plan to fund growth with balance of
debt and equity with a bias towards more debt funding.
What could lead to a positive rating action:
--Improvement of leverage metrics. At SEP sustained leverage between 3.0
and 3.5x would likely lead to a one notch upgrade. For SEC consolidated
leverage at 4.0x on a sustained basis could lead to a one notch upgrade.
For TETCO any positive ratings action at SEP could lead to a positive
ratings action at TETCO.
Fitch affirms the following ratings with a Stable Outlook:
Spectra Energy Capital, LLC
--IDR at 'BBB';
--Senior unsecured debt at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Spectra Energy Partners, LP
--IDR at 'BBB';
--Senior unsecured debt at 'BBB';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Texas Eastern Transmission, LP
--IDR at 'BBB+';
--Senior unsecured debt at 'BBB+'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Liquidity Review: Pipelines, Midstream and MLPs' (July 2014);
--'Pipelines, Midstream, and MLP Stats Quarterly - First Quarter 2014'
--'U.S. Midstream Dashboard' (June 2014);
--'Non-Traditional MLP Assets (Changing Mix, Changing Risk)' (May 2014);
--'MLP Parity Act (Renewables Have Potential to Provide Growth Once
Shale Ramps Down)' (March 2014);
--'Corporate Rating Methodology - Including Short-Term Ratings and
Parent and Subsidiary Linkage' (May 2014);
--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors'
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Source: Fitch Ratings