Fitch: Contribution to DCP Neutral for Spectra Energy and Spectra Energy Partners

NEW YORK--()--Fitch Ratings believes that Spectra Energy Corp.'s (SE) announced $1.5 billion asset contribution to its joint venture (JV), DCP Midstream, LLC (DCP; 'BB+'/Outlook Stable) is credit neutral to both Spectra Energy Capital, LLC (SEC; operating subsidiary of SE; 'BBB'/Outlook Negative) and Spectra Energy Partners, LP (SEP; 'BBB'/Outlook Stable). Yesterday, SE and Phillips 66 (PSX) announced that they have agreed to make a $3 billion asset contribution to their 50/50 JV DCP. SE has agreed to contribute its 1/3 ownership interest in both the Sand Hills and Southern Hills NGL pipelines out of SEP. PSX has agreed to contribute $1.5 billion in cash, which is expected to be used to pay down debt. The contribution helps alleviate some of the operating and balance sheet pressures DCP continues to face stemming from low processing margins and commodity prices.

SEP will contribute its 1/3 interests in Sand Hills and Southern Hills to SEC in exchange for a retirement of limited partner units and a partial waiver on incentive distribution right distributions. This is expected to make the transaction cash neutral to SEP. While the NGL pipelines leaving SEP are quality assets with stable cash flows that provide some business line diversification, the pipelines were small contributors to SEP's overall earnings and cash flow. Fitch continues to believe that SEP's ratings are supported by its large, diverse natural gas and oil transportation and storage assets which will continue to provide strong, consistent cash flows. The rating is also supported by organic growth opportunities that should drive cash flows higher.

For SE and SEC, Fitch expects the SEP unit retirement and partial incentive distribution right waiver to be cash flow neutral to slightly negative but not meaningfully impact earnings or credit quality. However, the asset contribution to DCP provides a good solution for SE to demonstrate support to DCP's business and maintain its 50% interest in DCP without a substantial cash outlay which was a concern for SE given robust capital spending plans. SEC's consolidated leverage metrics are expected to be elevated over the next several years as its subsidiaries work through a significant capital spending program. The asset contribution does not materially impact these expectations.

Additional information is available on www.fitchratings.com.

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Contacts

Fitch Ratings
Primary Analyst
Peter Molica, +1-212-908-0288
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kathleen Connelly, +1-212-908-0290
Director
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Peter Molica, +1-212-908-0288
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Kathleen Connelly, +1-212-908-0290
Director
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com