Enbridge Inc. (ENB, ENB.TO) and Enbridge Energy Partners, LP (EEP) entered into an agreement whereby Enbridge will invest $1.2 billion in preferred units issued by EEP, and which is expected to close later today, Enbridge Energy Partners said.
Additionally, Enbridge Energy Partners said it expects to exercise its options to pare down its economic interests in the Lakehead system expansions of both the Eastern Access and Mainline Expansion projects from 40 percent to 25 percent, by the June 30, 2013 deadline. Enbridge Energy Partners retains the option to increase its participation in either project back up to 40 percent for a period lasting until one year after the in-service date of each. Collectively, the preferred unit issuance and option exercise would reduce the amount of near term third party financing required by EEP to fund its current organic growth program by over $1.9 billion.
According to Enbridge Energy Partners, the preferred units with a price per unit of $25.00 (par value) will have a fixed yield of 7.5 percent, reset every five years. As per the preferred units terms, quarterly cash distributions will not be payable in cash during the first eight quarters and will be added to the redemption value. Quarterly cash distributions will be payable beginning in the ninth quarter and deferred distributions are payable on the fifth anniversary or when redemption of the units takes place.
The preferred units will be redeemable at EEP's option on the five year anniversary of the issuance and every fifth year thereafter, at par and including the deferred distribution. Earlier redemption is permitted under certain events including the ability to redeem the preferred units using the net proceeds from EEP's equity issuances or from the sale of assets and from the issuance of debt, in equal amounts.
In the event that the preferred units have not been redeemed in full at the fifth anniversary to the issuance, the deferred distribution will be payable at that time. In addition, on or after June 1, 2016, at Enbridge's sole option, the preferred units can be converted into approximately 43.2 million common units of EEP.
As per the Eastern Access and Mainline Expansion Joint Funding Agreements with Enbridge, EEP has the option to pare down its economic interest and associated funding of these liquids market access projects by up to 15 percentage points, from 40 percent to 25 percent, with the option expiring June 30, 2013.
EEP said it will have the option to increase its economic interest by up to 15 percentage points in the Lakehead System expansions of both the Eastern Access and Mainline Expansion projects within one year of the final project in-service dates. Final phases of the Eastern Access project and the Mainline Expansion Program are currently targeted for completion in 2016.
Enbridge Energy Partners said that it will use the proceeds from the preferred unit issuance to repay commercial paper, to finance a portion of its capital expansion program relating to its core liquids and natural gas systems and for general partnership purposes. Some or all of the net proceeds of this offering may be invested temporarily in short-term investment grade securities pending their use for such purposes.
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