Credit warning targets Enbridge subsidiary

parent company Enbridge.

Enbridge declined to comment Tuesday following the DBRS report, but said last week following the FERC announcement that it “does not expect a material impact to its previously disclosed financial guidance” through 2020.

EEP shares, which trade on the New York Stock Exchange, fell 17 per cent following the FERC announcement and have been steadily declining for the last week, including a three per cent drop Tuesday.

Enbridge is the majority owner of both EEP and Spectra Energy Partners (SEP), which are both master limited partnerships that the company has used as a fundraising tool in the past.

In a note on Monday, RBC Capital Markets analyst TJ Schultz called EEP “a broken tool” and lowered his price target to US$12 per share from US$17.

Schultz also dramatically slashed his price target on Calgary-based TransCanada’s subsidiary TC Pipelines LP by US$21 per share to US$45 per share because roughly half of the company’s agreements will be affected by the FERC’s new tax rules.

TC Pipelines shares fell 17.9 per cent immediately following the FERC decision and declined another two per cent Tuesday.

TransCanada said in a release Monday that it expected the FERC changes to have no “material financial impact on the company.” The company also said it operates a number of U.S. subsidiaries as corporations rather than MLPs, which minimizes the impact of the changes.

Both Enbridge and TransCanada are now likely to “roll-up” their MLP subsidiaries into the parent corporations, Barclays Capital analyst Christine Cho said in a note.

She said that Enbridge has an incentive to roll up both EEP and SEP and that TC Pipelines is also at risk of a distribution cut – meaning it will have less money to give back to its main shareholder, TransCanada.