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Enbridge Income Fund Receives Canadian Oil Sands System and Renewables

Enbridge (ticker: ENB) followed through on its April 2015 proposal to transfer assets to its Income Fund, swapping ownership of its Canadian Mainline, Regional Oil Sands System and Canadian renewable assets for a closing value of $30.4 billion. The value includes $18.7 billion of units in the fund structure and the assumption of $11.7 billion in debt. Enbridge will remain the operator of the transferred projects, and the expected closing date is August 2015.

The Mainline transports about 2.2 MMBOPD from Canada into the United States, accounting for about half of all Canadian production, and has another $1.3 billion invested in new pipelines and processing initiatives. The Oil Sands System connects eight different projects throughout western Canada and has two more projects scheduled to come online next year. Its renewable energy assets currently consists of about 2,200 megawatts (1,600 net megawatts) and is the third largest in North America.

Al Monaco, President and Chief Executive Officer of Enbridge, called the exchange a “win-win” for both companies. “Moving the Canadian Liquids Pipelines assets down to the Fund doesn’t change the fact that it remains our core business,” he said in a conference call following the announcement. “We’ll maintain a very significant economic interest in this business, continue to operate it, and we’ll manage its strategic development.”

Reasoning: Dividends

The transaction lays the path for Enbridge to increase its dividends by 33% in 2015, followed by annual average dividend per share growth of 14% to 16% from 2016 to 2018. According to a company press release, the transaction provides Enbridge with alternative funding and can “enhance its competitiveness for new organic growth opportunities and asset acquisitions.”

The Fund is also expected to increase distributions by about 10% annually through 2019. Management said its stable, low risk growth profile will provide the Fund with a steady future.

Drop Down Strategy

The massive dropdown, rather than a series of sequential dropdowns, provides clarity on future plans, said John Whelen, Enbridge’s Chief Financial Officer. “From a governance point of view, it makes it a little simpler in that the valuation really, from here on, is going to be determined by the equity issuances done by ENF.  So you can think of it as a one large dropdown, but from ENF’s point of view, there is sequential investments that come about year after year.”

Whelen added the company is planning to raise anywhere from $600 to $800 million per year for the next three to four years, resulting in total proceeds of about $3 billion. In line with the equity raises, Enbridge expects its overall interest in the fund to decrease to 80% from its current holding of about 90%.

Source: Enbridge June 19 Update

Source: Enbridge June 19 Update

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