Enbridge’s logos on display at the company’s annual meeting in Calgary, Thursday, May 12, 2016.Jeff McIntosh/The Canadian Press
Enbridge Inc.’s ENB-T decision to double-down in the United States with another blockbuster acquisition pits newly minted chief executive Greg Ebel’s diversification strategy against the potential for more debt drama.
Consumers want to be able to access energy from different sources, whether it’s oil, gas or renewables, he told media Wednesday. Enbridge will cater to this by creating an organization that is akin to a “three-legged stool,” he said, with one leg for each stream so it can quickly react to energy market changes.
A decade ago, Enbridge generated 75 per cent of its revenue from its oil pipeline division, and it was widely seen as a Canadian business. After a string of deals, including the one this week, the Calgary-based company’searnings before interest, taxes, depreciation and amortization (EBITDA) will be split 50-50 between its U.S. and Canadian operations, and oil has dropped to half of its total profit.
“I just think it’s a more balanced approach to energy infrastructure, which is really in response to what industry and consumers are looking for in terms of an all-of-the-above approach,”Mr. Ebel said on the call with reporters.
While diversifying, Enbridge must also consider what the new deal will mean for its balance sheet – and some early feedback has been more negative than positive.
Credit rating agencies Moody’s Investors Service and Standard & Poor’s both reaffirmed Enbridge’s investment grade rating after the latest acquisition was announced, but they also put the energy giant on a negative watch, meaning the companyhas a better chance of being downgraded than upgraded at this point in time.
Although Enbridge sold $4-billion of new shares to cover some of the deal’s US$9.4-billion price tag, “the negative outlook reflects uncertainty about the nature and timing of the remainder of the financing plan and credit metrics, which leave limited cushion to the company’s downgrade trigger of at-or-above 5 times debt to earnings before interest, taxes, depreciation and amortization,” S&P wrote in its ratings update on Wednesday.
Before the acquisition, Enbridge projectedthat it will keep its debt-to-EBITDA multiple within a range of 4.5 to 5 times for the near future, and even suggested the multiple will be closer to the lower end. After the acquisition, S&P is now projecting debt-to-EBITDA of 4.9 times in 2024.
In its own ratings update, Moody’s directly addressed the added diversification, with earnings from local gas distribution jumping to 22 per cent of Enbridge’s total, up from 12 per cent currently. While the rating agency welcomes this increase, it is more focused on the growing debt concerns.
“Although Enbridge’s business risk profile improves modestly with the transaction, it is not enough to offset ongoing pressure on the company’s financial profile,” vice-president Gavin MacFarlane wrote.
There are many reasons to worry about debt. For one, Enbridge got itself into balance-sheet trouble not so long ago, resulting in a debt downgradeby Moody’s in2017. After purchasing Houston-based Spectra Energy Corp. in 2016 for $37-billion, Enbridge’s total debt burden had swelled to more than six times its EBITDA. (Enbridge’s current CEO, Mr. Ebel, used to run Spectra.)
To win back investors and restore confidence from rating agencies, Enbridge ultimately sold $5.7-billion worth of assets in 2018, and another $2.1-billion in 2019.
More recently, some rival pipeline companies and utilities have faced the wrath of investors who are worried about debt loads. In July, Canadian rival TC Energy sold 40 per cent of Columbia Pipeline Group, a major division that focuses on natural gas transmission in the U.S. Northeast, to a private equity firm at a much lower multiple than what TC paid to buy it in 2016.
And in a somewhat ironic twist, the reason Enbridge was able to buy the new batch of U.S. assets is because the seller, Dominion Energy, is facing its own debt troubles and had to sell assets. Dominion has been struggling because of a costly offshore wind production project and regulatory changes in Virginia, where it makes the bulk of its money, that will affect the rates it charges. Dominion’s shares are down 44 per cent over the past year.
While Enbridge’s balance-sheet composition is not triggering a ratings downgrade, equity investors are particularly focused on debt loads now that interest costs on new borrowingsand refinancings are much more expensive.
Historically, Enbridge could override some of these concerns by enticing retail investors with a large dividend yield. That isn’t always enough any more, and before the acquisition was announced, Enbridge’s shares were down 9 per cent this yeardespite yielding more than 7 per cent.
Asked about the trade-off between debt and diversification Wednesday, Mr. Ebel said the opportunity to buy the assets was simply too good to pass up. When he took the reins of Enbridge on Jan. 1, he never even considered that such a deal would be available.
A package of gas assets of this nature hadn’t come to market for more than a decade, he said, and Enbridge is “one of the few players that can make a move of this size and magnitude in one fell swoop.” He also repeatedly stressed that the deal will strengthen and stabilize the company’s balance sheet over the long-term.
In terms of how Enbridge will now market itself to investors – as a pipeline operator with utilities? Or a utility operator with pipelines? – Mr. Ebel said he doesn’t think it has to be one or the other.
“I would say you should look at us as an energy infrastructure player that actually has a balanced approach to transporting, delivering for customers and industry on all of the above energy opportunities,” he said.
Human Resources Officers must be very busy these days what with the general turnover of employees in our retail and business sectors. It is hard enough to find skilled people let alone potential employees willing to be trained. Then after the training, a few weeks go by then they come to you and ask for a raise. You refuse as there simply is no excess money in the budget and away they fly to wherever they come from, trained but not willing to put in the time to achieve that wanted raise.
I have had potentials come in and we give them a test to see if they do indeed know how to weld, polish or work with wood. 2-10 we hire, and one of those is gone in a week or two. Ask that they want overtime, and their laughter leaving the building is loud and unsettling. Housing starts are doing well but way behind because those trades needed to finish a project simply don’t come to the site, with delay after delay. Some people’s attitudes are just too funny. A recent graduate from a Ivy League university came in for an interview. The position was mid-management potential, but when we told them a three month period was needed and then they would make the big bucks they disappeared as fast as they arrived.
Government agencies are really no help, sending us people unsuited or unwilling to carry out the jobs we offer. Handing money over to staffing firms whose referrals are weak and ineffectual. Perhaps with the Fall and Winter upon us, these folks will have to find work and stop playing on the golf course or cottaging away. Tried to hire new arrivals in Canada but it is truly difficult to find someone who has a real identity card and is approved to live and work here. Who do we hire? Several years ago my father’s firm was rocking and rolling with all sorts of work. It was a summer day when the immigration officers arrived and 30+ employees hit the bricks almost immediately. The investigation that followed had threats of fines thrown at us by the officials. Good thing we kept excellent records, photos and digital copies. We had to prove the illegal documents given to us were as good as the real McCoy.
Restauranteurs, builders, manufacturers, finishers, trades-based firms, and warehousing are all suspect in hiring illegals, yet that becomes secondary as Toronto increases its minimum wage again bringing our payroll up another $120,000. Survival in Canada’s financial and business sectors is questionable for many. Good luck Chuck!. at least your carbon tax refund check should be arriving soon.
NORMAN WELLS, N.W.T. – Imperial Oil says it will temporarily reduce its fuel prices in a Northwest Territories community that has seen costs skyrocket due to low water on the Mackenzie River forcing the cancellation of the summer barge resupply season.
Imperial says in a Facebook post it will cut the air transportation portion that’s included in its wholesale price in Norman Wells for diesel fuel, or heating oil, from $3.38 per litre to $1.69 per litre, starting Tuesday.
The air transportation increase, it further states, will be implemented over a longer period.
It says Imperial is closely monitoring how much fuel needs to be airlifted to the Norman Wells area to prevent runouts until the winter road season begins and supplies can be replenished.
Gasoline and heating fuel prices approached $5 a litre at the start of this month.
Norman Wells’ town council declared a local emergency on humanitarian grounds last week as some of its 700 residents said they were facing monthly fuel bills coming to more than $5,000.
“The wholesale price increase that Imperial has applied is strictly to cover the air transportation costs. There is no Imperial profit margin included on the wholesale price. Imperial does not set prices at the retail level,” Imperial’s statement on Monday said.
The statement further said Imperial is working closely with the Northwest Territories government on ways to help residents in the near term.
“Imperial Oil’s decision to lower the price of home heating fuel offers immediate relief to residents facing financial pressures. This step reflects a swift response by Imperial Oil to discussions with the GNWT and will help ease short-term financial burdens on residents,” Caroline Wawzonek, Deputy Premier and Minister of Finance and Infrastructure, said in a news release Monday.
Wawzonek also noted the Territories government has supported the community with implementation of a fund supporting businesses and communities impacted by barge cancellations. She said there have also been increases to the Senior Home Heating Subsidy in Norman Wells, and continued support for heating costs for eligible Income Assistance recipients.
Additionally, she said the government has donated $150,000 to the Norman Wells food bank.
In its declaration of a state of emergency, the town said the mayor and council recognized the recent hike in fuel prices has strained household budgets, raised transportation costs, and affected local businesses.
It added that for the next three months, water and sewer service fees will be waived for all residents and businesses.
This report by The Canadian Press was first published Oct. 21, 2024.
TORONTO – A new report says many Canadian business leaders are worried about economic uncertainties related to the looming U.S. election.
The survey by KPMG in Canada of 735 small- and medium-sized businesses says 87 per cent fear the Canadian economy could become “collateral damage” from American protectionist policies that lead to less favourable trade deals and increased tariffs
It says that due to those concerns, 85 per cent of business leaders in Canada polled are reviewing their business strategies to prepare for a change in leadership.
The concerns are primarily being felt by larger Canadian companies and sectors that are highly integrated with the U.S. economy, such as manufacturing, automotive, transportation and warehousing, energy and natural resources, as well as technology, media and telecommunications.
Shaira Nanji, a KPMG Law partner in its tax practice, says the prospect of further changes to economic and trade policies in the U.S. means some Canadian firms will need to look for ways to mitigate added costs and take advantage of potential trade relief provisions to remain competitive.
Both presidential candidates have campaigned on protectionist policies that could cause uncertainty for Canadian trade, and whoever takes the White House will be in charge during the review of the United States-Mexico-Canada Agreement in 2026.
This report by The Canadian Press was first published Oct. 22, 2024.
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