Moody's lowered its ratings on Enbridge Inc. while raising its outlook, following the company's recent announcement of strategic plans that include a 10% dividend hike and monetization of C$10 billion in noncore assets.
Moody's downgraded Enbridge's senior unsecured ratings to Baa3 from Baa2 and changed the ratings outlook to stable from negative. The outlook upgrade indicates Moody's view that Enbridge would follow through on its strategic plans, according to a Dec. 20 note.
"Our assessment of the plans is that the actions articulated are insufficient to improve the financial profile of the company in a timely manner to be in line with our previously stated expectations for a Baa2 rating," said Gavin MacFarlane, vice president and senior credit officer at Moody's.
Enbridge has a ratio of debt to EBITDA of 6.4x as of the 12 months ended September, while maintaining a Baa2 rating requires a ratio of below 5.5x for a sustained period, according to Moody's. With Enbridge's plans, Moody's expects the ratio to fall to between 5.3x to 5.5x, but it would be challenging given that certain execution risks appear "sufficiently high."
"The company's track record for executing its capital program on schedule and within budget is faltering on its largest, most high profile projects, including its Line 3 Replacement project," Moody's said. Enbridge's prospects are also affected by a large capital investment program and complexities in corporate and capital structure.
Enbridge (US) Inc. also got its short-term commercial paper rating lowered to P-3 from P-2 and its subordinated ratings changed to Ba2 from Ba1. Moody's did not change its ratings on Enbridge Income Fund and Enbridge Energy Partners LP.
