Fitch Affirms Express Pipeline, LLC's Sr Notes and Sub Notes; Outlook Stable

Fitch Ratings has taken the following actions on the debt ratings of Express Pipeline LLC/Express Pipeline LP (collectively, Express):

--Senior secured guaranteed notes of $110 million ($110 million outstanding) due 2020 affirmed at 'A-';

--Subordinated secured notes of $250 million ($74.3 million outstanding) due 2019 (scheduled to be fully repaid in 2017) affirmed at 'BBB+'.

The Rating Outlook on both issues is Stable.

KEY RATING DRIVERS

The rating affirmations reflect the project's low leverage of 0.93x net debt-to-cash flow available for debt service (CFADS), the projected strong financial profile with ship-or-pay agreements, and the project's cash flow resilience under some merchant market exposure as contracts expire. Performance for 2014 was consistent with expectations, extending a history of strong operating and financial performance with consolidated DSCRs averaging 2.71x over the last five years.

Stable Revenues: The project has diminished price and volume risk by currently contracting 86% of the pipelines' capacity with ship-or-pay agreements. The volume risk is further mitigated by the project's dominant position in the PADD IV region to import Canadian crude oil into the U.S. as well as its competitive contract and uncommitted tariff rates.

Operating Performance: The project benefits from a history of stable operating performance and a manageable cost profile. The operator is an experienced affiliate of the investment-grade sponsor, Spectra Energy Partners ('BBB'/Stable Outlook).

Debt Structure: Subordinate debt is fully amortizing and on schedule to pay off in 2017, two years prior to the legal maturity. Senior debt is a bullet structure but maintains DSCRs commensurate with the rating under Fitch's refinance scenario at a stressed interest rate.

Debt Service: Under Fitch's rating case financial scenario for contracted and uncontracted throughput, the financial profile remains commensurate with the ratings. Consolidated DSCRs average 5.0x through 2017 as subordinate debt amortizes. Thereafter, DSCRs are about 9.0x under Fitch's refinance scenario for senior debt.

RATING SENSITIVITIES

Negative:

--Significant reductions in total volume throughput;

--Additional debt that materially erodes cash flow.

Positive:

--Longer-term exposure to volumetric risk for this single-asset project limits the potential for positive rating action.

CREDIT UPDATE

Financial performance was strong in 2014 and Fitch estimates a consolidated DSCR of 4.01x. Ship-or-pay contracts for 225,000 barrels per day (b/d) of Canadian crude oil supported stable revenues and mitigated reduced throughput of 196,000 b/d (69.8% capacity factor), lower than the 2013 level of 208,188 b/d (74.5 capacity factor). The Platte pipeline, which carries domestic crude oil, experienced an increase in actual throughput of 121,000 b/d in 2014, greater than the previous year's throughput of 104,000 b/d.

Management continues to invest in the maintenance and expanded reach of Express pipeline. Total capital expenditures (capex) are estimated to be $250 million-$350 million for 2015 - 2017. Fitch's financial analysis only includes maintenance capex of $13.7, $18.3, and $9.1 million for 2015, 2016, and 2017, respectively, to account for ongoing needs to support asset management and upgrades to the pipeline's supervisory control and data acquisition (SCADA) system. Expansion capex will be funded by the sponsor to connect Express to the California market. Management will also fund enhancement projects to meet market demand.

Fitch projects financial performance consistent with historical experience. While contracts protect Express from revenue volatility, Fitch's financial stresses also demonstrate the project's cash flow resilience on a merchant basis at the current rating level. Fitch's rating case financial analysis includes a 5% decrease in Canadian volume throughput for both 2015 and 2016, a 10% decrease in U.S. volume throughput, and a 10% increase to operating and maintenance expenses. Fitch's projections also include a refinance scenario for the senior debt, amortizing through 2030 at a stressed interest rate of 8%. Consolidated DSCRs average 5.0x through 2017 as subordinate debt amortizes. Thereafter, DSCRs are about 9.0x under Fitch's refinance scenario for senior debt. Net debt-to- CFADS falls to 0.85x in 2015, and averages 0.36x after 2017 as only senior debt remains.

The project is resilient to the potential of lower demand. Express can withstand a reduction in throughput at Platte and Express of 40% and 47%, respectively, and still meet DSCRs of 1.0x. Fitch does not expect this level of decrease in throughput. Fitch believes the project's financial profile will continue to be strong, even with the possibility of increased competition, due to its revenue structure, competitive market position, and low leverage.

SUMMARY

Express System, composed of Express pipeline and Platte Pipeline, is an integrated 1,717-mile crude pipeline system that originates at Hardisty, Alberta and terminates at Wood River, Illinois. Express pipeline (785 mile & 24 inches in diameter) which starts in Alberta, Canada and ends in Casper, Wyoming, has a capacity of 280,000 bpd. Platte pipeline (932 mile and 20 inches in diameter), which starts in Casper, Wyoming and ends in Wood River, Illinois, has a capacity of 143,000 bpd. The actual capacity and shipping charges depend on the nature of the fluid properties of the individual crude oil batches being shipped. The debt is serviced by the transportation revenues generated from the Express system.

SECURITY

All debt was issued on a joint and several basis in that the issuers (Express Canada and Express US) are jointly liable for all debt obligations. Platte Company guarantees 100% of principal and interest on the senior guaranteed notes and 30% of the subordinate principal debt obligations. The guarantee is a revenue and asset pledge for the debt obligations. All notes are secured by the assignment of Express System's accounts receivables from transportation revenues and a floating charge over the Express Canada assets.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance', 11 July 2012.

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983613

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