CANEXUS CORP 6.5 PCT DEBS T.CUS.DB.D

RE:So much for the KXL rally....

[Nawaralsaadi]

Probably the CIBC downgrade didn’t help; we were well in our way to the $5.3 range earlier in the week when CIBC came with their questionable EBITDA downgrade for 2015. Nothing short of a moronic analysis in light of the increasing bottleneck at the pipeline side. Here is an excerpt from a letter I sent to the analysts who wrote the report:

The first issue we have with the report is the lack of empirical analysis on the implications of the indefinite KXL delay decision announced by the State Department on April 18^th. Based on our analysis this decision could potentially delay approval between 1 year (if the lower court decision is overturned) and up to 3 years (if the lower court approval is upheld). This development combined with the recent Northern Gateway setback (negative Kitimat vote, First Nations official rejection) has a material impact on the valuation of NATO. Your choice to ignore those key developments is bewildering in the context of what you have written in your February 10^th report:
 
“We believe the payback period for Bruderheim is particularly critical as the ramp in pipeline capacity and crude rail loading facilities is significant in the next three to five years... This makes the current operation model of fee-for-service increasingly difficult as time goes on”
 
Thus, the recently announced setbacks in the pipeline space should have a meaningful impact on CIBC’s long term EBITDA assumptions for NATO and thus the company current valuation and price target. This development could offset any negative implications for a fear of a slow NATO ramp up, an increased fear which in itself is inexplicable due to the lack of new data between March & April to justify such increased cautiousness. On the contrary, the delay of the Alberta Clipper expansion approval (delayed until July 2015 (at the earliest) - Enbirdge April 2nd) should further accelerate NATO’s ramp up in 2015 due to the obvious lack of pipeline transport capacity in 2015.   
 
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Regards,
Nawar