DBRS Confirms NOVA Gas Transmission Ltd. At “A,” Stable

DBRS has today confirmed the rating of NOVA Gas Transmission Ltd. (NGTL or the Company) at “A” with a Stable trend. The rating reflects NGTL’s strong credit profile, which is underpinned by its regulated pipeline operations with a growing investment base and financial and liquidity support from its parent – TransCanada PipeLines Limited (TCPL; long-term debt rated “A” by DBRS).

NGTL currently operates under the 2010–2012 Revenue Requirement Settlement, which allows the Company to generate strong cash flow, and to earn a reasonable return on its investment base, which has grown considerably as the Company has completed a number of pipeline projects this year (including Horn River and Groundbirch) totalling $600 million. Significant cash flow growth is expected over the medium term as the National Energy Board (NEB) has approved projects with costs estimated at approximately $630 million. These projects are expected to accommodate increased supply in the northeast British Columbia and northeast Alberta regions.

Significant free cash flow deficits are expected during the construction of these projects and will likely be financed by TCPL’s debt. Debt levels are expected to increase, weakening the Company’s credit metrics until major projects are completed. However, the continued financial and liquidity support from TCPL is key to the Company’s “A” rating. DBRS notes that approximately 62% of the Company’s total debt is owed to TCPL. All liquidity requirements at NGTL are provided for by TCPL, as the Company has no cash or credit facilities.

The rating confirmation factors in the uncertainty of TCPL’s regulatory restructuring proposal, which would affect the Company’s Alberta (AB) System. Under this proposal, the Company would contract for a portion of TCPL’s Mainline firm service and Foothill System’s firm service and would use this capacity to provide integrated services on its AB System and include the capacity costs in its revenue requirement. The NEB’s decision is not expected until early 2013.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating North American Pipeline and Diversified Energy Companies (May 2011), which can be found on our website under Methodologies.