DBRS Comments on TransCanada’s Columbia Pipeline Group Acquisition Closing
EnergyDBRS Limited (DBRS) notes that TransCanada Corporation (TCC or the Company) announced today that all conditions required to complete the previously announced acquisition of Columbia Pipeline Group, Inc. (CPG) under the terms of the merger agreement have been satisfied and that all necessary filings have been made for the transaction to take effect on July 1, 2016. TCC will acquire CPG for USD 25.50 per common share in cash, resulting in an aggregate purchase price of approximately USD 13 billion, including the assumption of approximately USD 2.8 billion of debt (the Acquisition). Upon completion of the Acquisition, CPG will be an indirect, wholly owned subsidiary of TCC.
DBRS continues to maintain its status of Under Review with Developing Implications on the Preferred Shares – Cumulative rating of TCC, as well as the Issuer Rating, Unsecured Debentures & Notes, Junior Subordinated Notes and Commercial Paper ratings of TransCanada PipeLines Limited. The Under Review with Developing Implications status of the DBRS ratings of TCC’s related issuers — NOVA Gas Transmission Ltd. and Trans Québec & Maritimes Pipeline Inc. — remain unchanged. Please refer to DBRS press releases, “DBRS Comments on TransCanada’s Acquisition of Columbia Pipeline Group Receiving Stockholder Support” (June 22, 2016) and “DBRS Maintains TransCanada Corporation and TransCanada Pipelines Limited Under Review – Developing” (June 2, 2016).
DBRS continues to believe that the Acquisition, combined with the proposed sale of its U.S. Northeast merchant power assets and a minority interest in the Company’s Mexican natural gas pipeline business, is neutral with respect to TCC’s overall business risk profile. With respect to TCC’s financial risk profile, DBRS expects initial pressure on the Company’s credit metrics as a result of the assumption of CPG’s existing debt and the USD 6.9 billion syndicated term loan credit facilities to bridge the timing gap between the closing of the Acquisition and the proposed asset sales, partly offset by the common equity issuance through a subscription receipts offering of CAD 4.4 billion on April 1, 2016. TCC expects that the subscription receipts will automatically be exchanged for TCC common shares on July 4, 2016, in accordance with the terms of the subscription receipt agreement. TCC has also announced that it is reinstating its dividend reinvestment plan for its common share and preferred share dividends to assist in the funding of the Company’s $25 billion near-term growth program. TCC has indicated that it intends to fund the combined large medium-term capital expenditure commitments of both TCC and CPG “in a manner consistent with the Company’s current financial profile.”
DBRS’s ratings of TCC and its related issuers continue to reflect (1) expected improvement in the Company’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. Currently, there are execution risks with respect to the asset sales and the resulting impacts on the Company’s financial risk profile are uncertain. TCC expects the asset sales to close by December 31, 2016. DBRS will further review the information related to the Acquisition as it becomes available, especially as it relates to the asset sales, and aims to resolve the Under Review with Developing Implications status once the complete financing details are known and the asset sale transactions have closed.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The applicable methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (December 2015), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Financial Issuers (April 2016) and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (January 2016), which can be found on our website under Methodologies.
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