OREANDA-NEWS. S&P Global Ratings today said it placed its 'BBB+' long-term corporate credit and senior unsecured debt ratings on Ontario-based regulated gas distributor Union Gas Ltd. on CreditWatch with positive implications based the announcement of the proposed friendly merger between Enbridge Inc. and Spectra Energy Corp., the ultimate parent of Union. At the same time, S&P Global Ratings placed its 'BBB-' global scale and 'P-2(Low)' Canada scale preferred shares ratings on CreditWatch with positive implications to reflect the flow-through impact of the potential upgrade on Union.

"The CreditWatch placement follows Enbridge's announcement of its C$37 billion--US$28 billion--proposed friendly merger with Spectra, which is the parent of Union," said S&P Global Ratings credit analyst Andrew Ng.

The CreditWatch placement solely reflects the application of our group rating methodology (GRM) criteria. Under our GRM framework, our ratings on Union are capped at one notch above our 'bbb' group credit profile (GCP) on Spectra, the current parent of Union, despite our 'a-' stand-alone credit profile (SACP) on Union. This is because existing structural and legal ring-fencing measures for Union only allows for a one-notch differential between the Union SACP and the Spectra GCP.

On close of the transaction we expect to maintain our 'BBB+' ratings and 'bbb+' GCP on Enbridge, which will become the new ultimate parent of Union. In addition, we expect Union would be a core asset and remain an insulated subsidiary under Enbridge. Furthermore, we expect existing structural and legal ring-fencing measures to remain unchanged, which continues to allow for a one-notch separation between our ratings on Union and our GCP on its parent. As a result, we could raise our ratings on Union to 'A-', one notch above our GCP on Enbridge.

We will resolve the CreditWatch placement on Union once we resolve that on Spectra. This includes determining the final GCP on Enbridge following the closing of the transaction and our review of Union's strategic importance to Enbridge including the structural and legal ring-fencing provisions.