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May 9, 2018

Enbridge cuts Spectra deal debt with $3 billion in asset sales

'Monaco has got the message': Enbridge selling its U.S. midstream business for $1.44B

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Enbridge Inc. took a leap forward in efforts to trim the pile of debt it took on with last year’s US$28.6 billion purchase of Spectra Energy Corp., announcing the sale of a U.S. natural gas business and stakes in some renewable-energy assets.

Enbridge on Wednesday agreed to sell its Midcoast Operating LP gas midstream unit to ArcLight Capital Partners for $1.44 billion. The pipeline giant also said it’s transferring its Canadian renewable-power assets, a wind farm in Colorado, a solar project in Nevada and a stake in two German offshore wind projects to a joint venture with the Canada Pension Plan Investment Board for $1.75 billion.

With the divestitures, Enbridge is making good on a goal of selling at least US$2.33 billion in assets this year to whittle down the US$14.5 billion in borrowings from the Spectra deal, which diversified the company into North American gas pipelines. That debt load has weighed on Enbridge shares, sending them down 18 per cent this year through Tuesday, the fourth-worst performance in the S&P/TSX energy index.

More sales may be on the horizon. Enbridge also is said to have hired Royal Bank of Canada to sell a group of Canadian gathering and processing assets that could fetch more than US$1.56 billion. The assets, located in British Columbia and Alberta, were owned by Spectra.

Longer-term, Enbridge has identified US$7.76 billion in non-core assets that it plans to unload. Still, the debt remains a concern, with Moody’s Investors Service Inc. in December downgrading Enbridge’s rating, saying the divestiture plan was “insufficient to improve the financial profile of the company in a timely manner.”

Enbridge shares rose 2.1 per cent to $41.32 at 1:44 p.m. in Toronto.

Spreads on Enbridge’s domestic bonds tightened several basis points Wednesday as traders cheered the company moving ahead with asset sales faster than anticipated. The debt has underperformed in recent months amid concerns that Enbridge’s strategy won’t improve the balance sheet quickly enough.

In December, Moody’s Investors Service downgraded Enbridge’s rating one level, to Baa2, the second-lowest for investment-grade bonds. The ratings service said the divestiture plan was “insufficient to improve the financial profile of the company in a timely manner.”

Canadian Imperial Bank of Commerce acted as Enbridge’s financial adviser on the renewables deal, and Dentons provided legal advice. Citigroup Inc. was financial adviser on the Midcoast sale, with Norton Rose Fulbright US LLP providing legal advice.

The Midcoast assets Enbridge is selling include gas and natural gas liquids gathering, processing, transportation and marketing operations in Texas, Oklahoma and Louisiana. ArcLight is a Boston-based private equity firm focused on energy infrastructure assets.