DBRS Confirms Ratings of TransCanada Corporation & TransCanada PipeLines Limited

DBRS has today confirmed the ratings of TransCanada Corporation (TCC or the Company) and its wholly owned subsidiary, TransCanada PipeLines Limited (TCPL), both with Stable trends. The ratings primarily reflect (1) expected improvement in TCC’s overall business risk profile over the medium term, (2) potential medium term pressure on its credit metrics and (3) environmental, regulatory and political risks with respect to its natural gas and liquids pipelines segments.

(1) TCC’s planned $38 billion growth capital expenditures (capex) program would improve TCC’s overall business risk profile by expanding its lower risk crude oil pipeline segment and reducing its proportional exposure to the natural gas pipeline segment in Canada and the United States and to volume and/or commodity price risk within its Energy segment. The growth projects are largely contracted with good counterparties and, if completed, would also reduce the proportion of its EBITDA that is exposed to commodity price risk.

(2) DBRS expects TCC’s credit metrics to be pressured, from currently reasonable levels, in the medium term, particularly if its Keystone XL liquids pipeline project is approved in the next few quarters. Key credit metrics targeted by TCC are cash flow-to-debt of at least 15% and cash flow-to-interest of at least three times. DBRS expects the length of time of credit metric under-performance to be dependent on the timing of approval and capex spending pattern of the projects that are currently awaiting final investment decision.

(3) TCC faces environmental, regulatory and political risks with respect to its Keystone XL project, which has been repeatedly delayed due to environmental and political issues. Regulatory risk was highlighted by the National Energy Board’s March 2013 Canadian Mainline decision, which eliminated the full throughput protection of the previous tolling methodology. Future project execution could entail longer lead times and higher construction costs than before, potentially affecting Energy East and other large projects.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, Preferred Share and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions) and Rating Pipeline and Diversified Energy Companies, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.