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Enbridge Energy Partners Is Not the Next Boardwalk

Its symbiotic relationship with its general partner offers unparalleled financial backing and growth prospects.

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At first glance,  Enbridge Energy Partners (EEP) exhibits many of the same symptoms as Boardwalk Pipeline Partners (BWP) before the latter firm's unexpected 81% distribution cut in February. Gas/natural gas liquids industry conditions have affected the profits of EEP's gas processing business. EEP's operating cash flows have been unable to fully pay for declared distributions for more than two years. The balance sheet is relatively leveraged at more than 4.5 times debt/EBITDA. And finally, the partnership has large growth spending needs through 2016.

Although each of these issues is a serious risk to the distribution and the business overall, we believe they are all fully manageable for three reasons. First, Enbridge Energy Partners has a strong, symbiotic relationship with its general partner, Enbridge Inc. (ENB), which serves as a financing backstop. Second, it is entrenched in a massive $4 billion growth program for 2013-17 with Enbridge Inc. that will deliver largely fee-based, contracted, visible cash flows as projects come on line over the next several years. Third, throughout 2013, EEP completed several financing initiatives--with the help of Enbridge Inc.--that shored up its balance sheet and established adequate liquidity for the medium term.

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Connie Hsu does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.