TEXT - Fitch rates Spectra Energy Capital LLC proposed offering

Mon Feb 25, 2013 3:49pm EST

Feb 25 - Fitch Ratings has assigned a 'BBB' rating to Spectra Energy Capital
LLC (SEC) proposed offering of senior unsecured notes due 2023. The Rating
Outlook is Stable. The notes will be fully and unconditionally guaranteed by
SEC's parent, Spectra Energy Corp. (NYSE: SE), on a senior unsecured basis. Note
proceeds will be used to repay commercial paper used to repay the $495 million
aggregate principal amount of SEC's 6.25% notes that matured on Feb. 15, 2013.
Note proceeds also may be used to fund capital expenditures and for other
corporate purposes, including acquisitions and the repayment of other commercial
paper. Commercial paper outstanding at year end at SEC was approximately $1.2
billion. 

KEY RATING DRIVERS

Stable, Predictable Cash Flows: SEC's ratings reflects the diversity and quality
of its asset base and the high percentage of cash flows derived from stable 
pipeline, storage and gas distribution assets. The ratings reflect the earnings 
and cash flow stability driven by SEC's high percentage of fee-based and 
capacity reservation revenue derived from the company's operations, principally 
its large-scale interstate pipelines, a sizable gas distribution company in 
Ontario, Western Canadian gathering and processing business, and its storage 
assets. 

Strategically Located, Diverse Asset Base: SEC's asset base represents one of 
the largest natural gas infrastructure businesses in North America. The 
company's assets are strategically located to capitalize on the significant 
investment and growth in natural gas production in recent years from most major 
North American producing basins. The company's pipelines are also situated to 
capitalize on future growth in new basins, such as the Marcellus and Eagle Ford 
Shales.

Large-Scale Capex Program: The ratings consider that SEC is in the middle of a 
large-scale capital expenditure program. Given the anticipated investments and 
the company's sizable dividends, Fitch's expectations are that SEC will generate
negative free cash flow for several years and credit metrics will weaken 
slightly. Fitch believes that the inherent risks of the capital program, 
however, are partially mitigated by the focus on pipeline and storage expansion 
projects, which are backed by firm capacity commitments generally under 
long-term contracts. 

Capex Temporarily Weighs on Metrics: Fitch believes SEC's core regulated assets 
will provide the stability needed to maintain credit quality, and the 
incremental EBITDA provided as growth projects come online will result in 
improved metrics, more in line with similarly rated peers. Fitch believes SEC 
should be able to fund future capital expenditure levels with a moderate amount 
of additional leverage, and that leverage measures will move lower as projects 
come on line. Fitch expects consolidated Debt to adjusted EBITDA of between 
4.25x to 4.5x for 2013, moving closer to 4.0x by 2015 as construction is 
completed and projects start generating returns. In calculating credit metrics, 
Fitch adjusts EBITDA to include cash distributions received from 
non-consolidated affiliates. 

Liquidity Adequate: Fitch believes SEC's liquidity to be adequate. On a 
consolidated basis SEC has $4.1 billion of committed U.S. and Canadian 
facilities at year end 2012. Total availability as of December 31, 2012 was $2.8
billion. While ongoing access to capital markets should be available to SEC, 
credit facilities would support a significant portion of capital spending and 
debt maturities if needed. Financial covenants are light and the revolver 
includes a covenant requiring SE consolidated debt-to-total capitalization 
ratio, as defined in the agreement, to not exceed 65%. 

Credit concerns include the structural subordination of SEC's debt to 
approximately $6.9 billion of subsidiary debt. Additionally, SEC remains exposed
to commodity price risk through its Empress natural gas liquids system and its 
50% interest in DCP Midstream, LLC (DCP; Fitch IDR of 'BBB' with a Stable 
Outlook). 

The Stable Outlook reflects Fitch's expectation that the benefit to creditors of
SEC's stable pipeline and storage and distribution assets offsets the volatility
in cash flows of SEC's midstream operations and higher leverage due to its large
capital spending program. 

RATING SENSITIVITIES 

Positive: Future developments that may, individually or collectively, lead to a 
positive rating action include: 

--A material improvement in credit metrics with sustained leverage at 3.5x or 
below. 

Negative: Future developments that may, individually or collectively, lead to a 
negative rating action include:

--A significant decline in distributions from DCP. 
--Significant cost overruns on capital projects.
--Increased exposure of earnings and cash flow to changes in commodity prices.
--Sustained debt/adjusted EBITDA above approximately 4.5x. 

Fitch rates SEC as follows: 
Spectra Energy Capital, LLC
--Issuer Default Rating (IDR) 'BBB';
--Senior unsecured debt 'BBB';
--Short-term IDR 'F2';
--Commercialpaper 'F2'.
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