Enbridge Income Fund (ENF.UN) announced that it is evaluating plans to convert from a trust to a corporation.
Enbridge Inc. (ENB owns 72% of the units) said it is not considering acquiring the public's interest in the Fund.
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Evaluating Corporate Restructuring
The Fund's Administrator today recommended to the Board of Trustees a proposed restructuring of the Fund to take effect prior to the January 1, 2011 SIFT tax. The proposed restructuring would involve the exchange by public unitholders of their trust units, which collectively represent a 28% economic interest in the Fund, for shares of a taxable Canadian corporation to be called Enbridge Income Fund Holdings Inc. (EIFH), plus a small amount of cash. EIFH would secure a bank credit facility to fund the cash payment as well as to provide flexibility to fund further investment in the Fund in support of its growth opportunities.
Public unitholders would retain their current proportionate economic interest in the Fund, held indirectly through EIFH. The Fund would cease to be a SIFT and would not be subject to the SIFT tax, although both EIFH and Enbridge Inc. would be subject to corporate income tax on taxable income received from the Fund. Dividends paid by EIFH are expected to be eligible dividends which qualify for the enhanced federal dividend tax credit. Public unitholders would have a choice either to effect the exchange on a tax-deferred basis if they have embedded capital gains on their units, or to realize any embedded gain or loss.
It is anticipated that EIFH would maintain an investor value proposition similar to the Fund's current proposition - providing the bulk of the return to its investors in the form of a high cash payout which is safe and dependable. EIFH would also benefit from a modest amount of growth potential supported by further development of the Fund's asset base, and potentially by further EIF acquisitions of third party or Enbridge Inc. assets with comparable risk to the existing asset base. The scope of activities of EIFH would be limited to investment in the Fund.
A committee of independent trustees of the Fund, assisted by independent legal and financial advisors, will review the Administrator's recommendation in light of potential alternatives and provide its recommendation to public unitholders. Further specific details of the proposed restructuring will be communicated to unitholders following refinement and finalization of the restructuring plan in conjunction with the review by the independent trustees. The recommended restructuring would be subject to approval by unitholders at the annual meeting of the Fund in May 2010. Details of the restructuring will be incorporated in materials sent to unitholders in advance of that meeting.
Mr. Schultz commented on the proposed restructuring plan on behalf of the Administrator, "Enbridge Inc. has advised that it is not considering acquiring the public's interest in the Fund. We believe that the proposed restructuring will preserve value for unitholders and permit the Fund to continue to prosper, access additional capital, and increase distributions on the strength of its excellent organic growth opportunities".
Since Enbridge Inc. stated that they are not interested in purchasing Enbridge Income Fund, Fort Chicago (FCE) is the most likely acquirer.
What does Enbridge Income Fund own?
Enbridge Income Fund owns a 50% interest in the Canadian segment of the Alliance Pipeline, a 100% interest in Enbridge Pipelines (Saskatchewan) Inc., and a 50% interest in NRGreen Power Limited Partnership, which operates electrical generation facilities using waste heat, and holds interests in three wind power projects in Western Canada.
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