OREANDA-NEWS. S&P Global Ratings today said it affirmed its ratings, including its 'BBB' long-term corporate credit rating, on Calgary, Alta.-based Veresen Inc. The outlook is stable.

"We believe Veresen's announcement that it is selling its power generation business, suspending its premium dividend and dividend reinvestment program, and maintaining its current annualized dividend rate will not affect the ratings," said S&P Global Ratings credit analyst Gerry Hannochko.

The company's power business consists approximately of 625 megawatts of primarily renewable and gas-fired generation and contributes about C$95 million to the company's overall EBITDA. The assets' sale decreases the contribution of the more volatile unregulated power segment and increases the proportion of take-or-pay and fee-for-service midstream assets, including those under construction at Veresen Midstream L. P. However, we believe that the overall impact is not significant enough for us to revise our business risk profile assessment of strong.

Veresen's financial risk profile remains significant. The power business' sale will help improve financial metrics because proceeds will reduce debt outstanding and fund the remaining equity component of projects currently under construction through 2018. Also, we expect the dividend coverage ratio will remain at about 1.0x in 2016 and 2017, rising above 1.0x after 2018. We forecast adjusted funds from operations (AFFO)-to-debt will remain in the 20%-24% range through 2018.

Veresen's business risk profile and competitive position are unchanged at strong. The resulting anchor score is 'bbb'. We used no modifiers in arriving at the 'BBB' indicative rating.

The stable outlook reflects our expectation for the company to maintain its AFFO-to-debt in the higher end of the significant financial risk profile over the next two years. We expect the company to maintain AFFO-todebt in the 20%-24% range and fund its capital programs through a combination of internally generated cash flow, distributions from its joint ventures (JVs), and asset sales. While financial metrics are at the high end of the category and close to the threshold for the intermediate financial risk profile, the expected dividend coverage ratios mitigate the strong AFFO-to-debt metrics.

We could lower the ratings if new debt-funded projects or lower-than-expected processing volumes, which result in lower dividends from the JV, depress cash flow metrics to the lower end of the significant financial risk category (16%) using the medial table.

The uncertainty surrounding the Jordan Cove project plan means that an upgrade is unlikely in the next two years without AFFO-to-debt staying consistently on the cusp (22%-24%) of the intermediate financial risk profile using the medial table. In addition, dividend coverage of well over 1.0x will be required for an upgrade.