DBRS Updates Report on Trans Québec & Maritimes Pipeline Inc.

DBRS has today updated its report on Trans Québec & Maritimes Pipeline Inc. (TQM or the Company). Current ratings are supported by TQM’s low financial risk profile and partially offset by higher business risk.

TQM’s business risk profile, in aggregate, is rated BBB (high) based on the following factors: (1) Regulatory/Contractual, A (low): Fully regulated operations with no volume risk and strong counterparties provide for low cash flow volatility. However, TQM could face a re-contracting risk when the current contract with TransCanada PipeLines Limited (TCPL; rated A (low) by DBRS) expires on October 30, 2018. In the absence of long-term contracts, ratings could be negatively affected by increased cash flow volatility; (2) Supply/Demand Considerations and Customers/Shippers, A (low): TQM is part of the integrated TCPL Canadian Mainline system, and Gaz Métro Limited Partnership (Gaz Métro; rated “A”) is the principal distributor of natural gas shipped within Québec. Operations are supported by steady demand from Gaz Métro’s diverse customer base and by a reliable shipper in TCPL; (3) Competitive Environment, BBB (high): TQM is unique for a pipeline operator as it faces direct competition from low-cost hydroelectric power, which increases its business risk profile; and (4) Product and Geographic Diversification, BBB: TQM is a single asset pipeline concentrated in Québec, which exposes the Company to seasonality and regional demand imbalances.

TQM’s strong financial risk profile helps support current ratings. In aggregate, TQM’s financial risk is rated A (high) based on the following factors: (1) Cash flow-to-debt, AA (low): This ratio is very strong relative to current ratings at 17.7% (for the last 12 months ended September 30, 2013), and is the lower range of the AA rating category; (2) Debt to Capital, “A”: This ratio is well within the “A” rating category at 60%; and (3) EBIT-to-interest, AA (low): This ratio is very strong benefitting from a low interest rate environment at 3.53 times.

TQM faces re-financing risk in the medium term as all of the Company’s $260 million debt is scheduled to mature prior to the expiry of the commitment from TCPL in October 2018. However, DBRS believes that the re-financing risk will be manageable given the strategic importance of TQM to the Québec market.

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

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