Exploding Pipelines Are Not Enbridge's Only Problems

Would you invest in a company whose conference call was so full of miscues that it was described by an attendee as “the worse conference call ever?” That was the reaction of one journalist to Enbridge Inc.’s preliminary briefing on the deadly explosion that ripped through its pipelines near Clearbrook, Minnesota.

The explosion itself doesn’t put a shine on the company’s image either. It might have been one of those freak accidents, something beyond the company’s control. But according to a Nov.29 Reuters report, the pipeline ruptured, leaked, or spilled on four separate occasions in the ten months leading up to the blast.

Enbridge has long been a favorite of conservative, income-seeking investors. Its dividend is relatively attractive at 3.3% and has been raised every year since at least 1996 (by an annual average of over 10% in the past five years). But this fine record was partially supported by an increase in the payout ratio from 51% to 66% over the past four years, as one source says.

Moreover, bond rating agency DBRS recently issued a warning that the “A” rating on Enbridge’s medium-term notes and unsecured debentures was at risk of a downgrade. The company has embarked on a huge expansion of capacity projected to cost nearly $14 billion over the next four years (by comparison, net fixed assets on its balance sheet are $12 billion).

DBRS says “the increasing size of the capital expenditure initiatives, combined with the Company’s strategy for funding cash flow deficits with a significant portion of debt, will result in more significant deterioration in the Company’s credit metrics during the construction period than previously anticipated by DBRS.”