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Moody's reviews Enbridge credit ratings for possible 'multi-notch upgrade'

Enbridge Inc. may see its credit ratings and those of several subsidiaries upgraded by Moody's as the Canadian pipeline operator moves to simplify its corporate structure.

Moody's on Dec. 11 placed Enbridge on review for an upgrade of its Baa3 senior unsecured rating, along with Enbridge Energy Partners LP's Baa3 rating and Enbridge Energy LP's Baa2 rating. All of the ratings are considered investment-grade.

"Enbridge has taken significant steps to simplify the corporate structure and reduce structural subordination, including the announcement of cross-guarantees among Enbridge, Spectra and Enbridge Energy Partners," Gavin MacFarlane, vice president and senior ratings officer in Moody's Toronto office, said in a statement. "Combined with a sustained reduction in leverage, these efforts position the company for a multi-notch upgrade."

The changes would affect approximately C$31 billion in debt, Moody's said. Subsidiaries that issue their own debt for ratemaking purposes, such as the company's Ontario gas distribution utilities and government-regulated pipelines, will continue to carry their own ratings.

Following Enbridge's recent move to roll up its U.S. partnerships in the wake of changes in tax treatment there, "the percentage of holding company debt to proportionately consolidated debt should reach 55%-60% up from around one-third," Moody's said. The transactions would increase unlevered EBITDA to about 30%. "Lower operating company debt and higher unlevered EBITDA are important considerations that reduce structural subordination considerations at the company," the report said.

Shareholders will vote on Enbridge's proposed merger with Enbridge Energy Partners and Enbridge Energy Management LLC in Calgary on Dec. 17. The parent company has offered 0.335 common share for each unit of the subsidiaries.