Mr. Perry Schuldhaus of Enbridge Income Fund Holdings reports

ENBRIDGE INCOME FUND ENTERS INTO $1.76-BILLION TRANSACTION WITH ENBRIDGE INC. FOR NATURAL GAS AND DILUENT PIPELINE INTERESTS

Indirect wholly owned subsidiaries of Enbridge Income Fund have entered into agreements with indirect wholly owned subsidiaries of Enbridge Inc. to acquire a 50-per-cent interest in the U.S. segment of the Alliance pipeline and subscribe for and purchase Class A units, which will provide a defined cash flow stream from the Southern Lights pipeline, for $1.76-billion.

Enbridge Income Fund Holdings Inc. (the company) also announced that to finance its equity investment in the fund pursuant to the transaction, it has entered into a bought-deal agreement with Scotiabank, RBC Capital Markets and TD Securities Inc. for the sale of an aggregate of 11.1 million subscription receipts of the company at a price of $30.35 per subscription receipt for gross proceeds of $337-million. Closing of the transaction is subject to customary regulatory approval, including pursuant to competition legislation in Canada and the United States. The company anticipates that the transaction will be completed in November, 2014.

Collectively, the assets are expected to generate within the fund cash flow before interest expense of approximately $150-million per year on average over a long-term planning horizon. The company intends to increase the dividend on its common shares by 12 per cent following the close of the transaction.

"This immediately accretive acquisition creates a tremendous opportunity for the fund to continue delivering on its value proposition of long-term, stable and growing cash flows underpinned by businesses with strong fundamentals," noted Perry Schuldhaus, president of the company. "We believe that the acquisition of the U.S. segment of the Alliance pipeline and the cash flows from the Southern Lights pipeline will be a great fit for the fund and is expected to deliver numerous benefits. The assets will substantially scale up and further diversify the fund's sources of low-risk cash flow. After giving effect to the transaction, the distributable cash flow generated from the natural gas transmission and crude oil transportation and storage segments are expected to increase to approximately 25 per cent and 46 per cent, respectively, over a long-term planning horizon. Expected additional cash flow accretion will also enable the fund to build cash resources to support investment in further growth. Both assets offer opportunities to participate in future growth of the assets, which is supported by strong fundamentals within each of the businesses."

The transaction

The fund has owned a 50-per-cent interest in the Canadian segment of the Alliance pipeline since 2003. Acquiring a 50-per-cent interest in the U.S. segment of the Alliance pipeline will result in the consolidation of ownership in the Alliance pipeline, with Veresen Inc. owning the remaining 50-per-cent interest.

Wholly owned subsidiaries of the fund will subscribe for Class A units in Enbridge SL Holdings LP, which indirectly owns the Canadian segment of the Southern Lights pipeline, and purchase Class A units in Southern Lights Holdings LLC, which indirectly owns the U.S. segment of the Southern Lights pipeline. Enbridge Pipelines Inc. and Enbridge Energy Company Inc., both indirect wholly owned subsidiaries of Enbridge, will own the Class B units in Enbridge SL Holdings and Southern Lights Holdings, respectively. The Class A units are non-voting and do not confer any governance rights or ownership rights in the Southern Lights pipeline. They entitle the holder to receive scheduled and fixed quarterly distributions until June 30, 2040, in priority to the holder of Class B units, comprising a return on and of capital. The distributions represent the equity cash flows attributable to the core rate base pursuant to the terms of the current transportation service agreements for the Southern Lights pipeline. The distributions are subject to certain risks, including shipper default, force majeure and regulatory risks.

The holder of the Class A units has the right to extend the term of the investment beyond June 30, 2040, for two consecutive additional 10-year terms, and the fund has the right to participate in up to 100 per cent of the equity returns from future capacity expansions, if any, on the Southern Lights pipeline for a term of 30 years commencing on the in-service date of such expansion through the purchase of additional units.

Financing of the transaction by the fund

The fund intends to finance the transaction through a combination of debt and equity, as set out in the attached table.

                       FUND SOURCES OF FINANCING                                                   
                    (millions of Canadian dollars)                                              
                                                                            
Fund trust units issued to the company (13,860,000 units at $30.35    
per unit)                                                             $420.7    
Preferred units of ECT issued to Enbridge (15,200,000 units at        
$30.35 per unit)                                                       461.3    
Loan from Enbridge                                                     878.0
Total                                                               $1,760.0

Equity financing is expected to be provided through the issuance of fund trust units to the company and preferred units of Enbridge Commercial Trust to Enbridge immediately prior to closing. All of the fund trust units and the ECT preferred units will be issued at a price of $30.35 per unit. In addition, Enbridge has agreed to provide the fund with an $878-million unsecured, subordinated 10-year loan at a fixed-interest rate of 5.5 per cent per annum. The loan may be prepaid at any time without penalty or bonus. It is anticipated that the company will opportunistically access the capital markets to repay the loan after the closing of the transaction.

Financing of the transaction by the company

The company will finance its subscription for fund trust units through the issuance of $337-million of subscription receipts pursuant to a public offering and the issuance of $84-million of common shares to Enbridge on a private placement basis, which will enable Enbridge to maintain its 19.9-per-cent interest in the company. The 2.76 million common shares will be issued to Enbridge immediately prior to the closing of the transaction at a price of $30.35 per common share.

Pursuant to a bought-deal letter with Scotiabank, RBC Capital Markets and TD Securities, on behalf of a syndicate of underwriters, the company has agreed to sell an aggregate of 11.07 million subscription receipts to Scotiabank, RBC Capital Markets and TD Securities on a bought-deal basis at a price of $30.35 per subscription receipt for gross proceeds of $337-million.

If the transaction proceeds and upon satisfaction of certain escrow release conditions, immediately prior to closing of the transaction, each holder of subscription receipts will automatically receive one common share for each subscription receipt held, without further action or additional consideration on the part of the holder, together with an amount equal to any dividends paid to holders of the common shares pursuant to a record date occurring on or after the date of the closing of the offering and the day immediately prior to the closing of the transaction, net of any applicable withholding taxes. Any dividend declared but not yet paid on the day prior to closing of the transaction will be paid to such subscription receipt holders at the time of the payment of such dividend to shareholders of the company.

The proceeds from the sale of subscription receipts will be held by an escrow agent and invested in short-term obligations of, or guaranteed by, the government of Canada (and other approved investments) until the earlier of the closing of the transaction and Jan. 31, 2015. If the closing of the transaction does not occur on or before the termination date, or is terminated at any earlier time, the subscription receipts will be terminated and cancelled, and the full purchase price of the subscription receipts will be returned to holders of subscription receipts, together with their pro rata portion of any interest earned on thereon.

The subscription receipts will be offered in all of the provinces of Canada pursuant to a short-form prospectus. Closing of the offering is subject to certain conditions, including receipt of the approval of the Toronto Stock Exchange and all other necessary regulatory approvals.

Effect of the transaction on ownership of the fund and company

If the transaction is completed, the company's holdings of fund trust units will increase from 85.6 per cent to 88.1 per cent of the issued and outstanding fund trust units, and Enbridge's holdings of fund trust units will be reduced from 14.4 per cent to 11.9 per cent. Enbridge Inc. will continue to own all of the issued and outstanding ECT preferred units, which are convertible at any time and from time to time into fund trust units on a one-to-one basis. If Enbridge were to convert all of its ECT preferred units, it would own 58 per cent of the issued and outstanding fund trust units. Enbridge's economic interest in the fund as a whole, represented by its direct ownership of fund trust units and ECT preferred units, as well as its 19.9-per-cent interest of common shares, will be reduced from 67.3 per cent to 66.4 per cent.

Special committee and board recommendation

A joint special committee of the independent trustees of ECT and the independent directors of the company was formed to consider the transaction and determine whether to proceed with the transaction. The special committee retained independent technical, legal, tax and financial advisers, including Norton Rose Fulbright Canada LLP as legal counsel and BMO Nesbitt Burns Inc. as financial adviser. The special committee also retained independent engineers to conduct due diligence on the Southern Lights pipeline and the U.S. segment of the Alliance pipeline and an independent gas market consultant to provide its views on how North American gas market fundamentals may impact the Alliance pipeline and the acquisition of the U.S. segment of Alliance pipeline by the fund.

BMO Capital Markets provided the special committee with an opinion, which concluded that the consideration to be paid for the assets pursuant to the transaction is fair from a financial point of view to the fund and the company and the company's shareholders, in each case other than Enbridge. Based on its evaluation and advice from its advisers, the special committee negotiated the terms of the transaction with Enbridge, including the purchase price, and recommended that the board of trustees of ECT approve the transaction. The ECT board (with trustees who are also directors or officers of Enbridge abstaining) considered the recommendation of the special committee, the BMO Capital Markets opinion and the advice of the independent advisers retained by the special committee and concluded that the transaction is in the best interests of the fund and ECT, and in the best interests and fair to each of the unitholders of the fund and ECT, in each case other than Enbridge, and unanimously approved the transaction.

The board of directors of the company then considered the company's participation in the transaction, the special committee recommendation, the ECT board approval and the BMO Capital Markets opinion. The board (with directors who are also directors or officers of Enbridge abstaining) unanimously concluded that the transaction is in the best interests of the company and is in the best interests of and fair to its shareholders, other than Enbridge, and unanimously approved the transaction.

The pipelines

Alliance pipeline

The Alliance pipeline commenced commercial operations in December, 2000, and consists of approximately 3,000 kilometres of integrated, high-pressure natural gas transmission pipeline, approximately 730 km of lateral pipelines located in Western Canada and North Dakota, and related infrastructure beginning in northeastern British Columbia and northwestern Alberta, and terminating in the Chicago area, where it connects to the Aux Sable NGL extraction plant. The Alliance pipeline is uniquely positioned to respond to the production growth and the changing composition of natural gas in the Western Canadian sedimentary basin and the North Dakota Bakken region, where production is becoming increasingly rich in natural gas liquids. Information regarding the Alliance pipeline, including the U.S. segment, is contained in the annual information form of Alliance Pipeline Limited Partnership dated May 1, 2014, and its other public filings, which are available at SEDAR.

Southern Lights pipeline

The Southern Lights pipeline is a fully contracted single-stream pipeline that runs northerly from the Enbridge Manhattan terminal, just south of Chicago, to the Enbridge Edmonton terminal in Western Canada. It has been in service since 2010 and can transport up to 180,000 barrels per day of condensate, which is primarily used by oil sands producers as a diluent to blend with raw bitumen production to facilitate pipeline export by decreasing the viscosity of the bitumen.

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