DBRS Limited (DBRS Morningstar) confirmed Trans Québec & Maritimes Pipeline Inc.’s (TQM or the Company) Issuer Rating at A (low) with a Stable trend. The Company is owned equally by TransCanada PipeLines Limited (TCPL; rated A (low) with a Stable trend by DBRS Morningstar) and Énergir, L.P. (Énergir; 71% owned by Énergir Inc., rated “A” with a Stable trend by DBRS Morningstar). TQM's pipeline system extends east from TCPL's long-haul Canadian Mainline natural gas transmission network at Les Cèdres, Québec and supplies natural gas to customers in Québec through Énergir's distribution network. TQM also serves markets in the Northeastern United States and Atlantic Canada.
The Company has a long-term, cost-of-service (COS) take-or-pay contract with TCPL to transport natural gas that extends to 2042 and provides nearly all its earnings that do not vary with actual use of contracted capacity, eliminating any volume or commodity risk. TCPL is the only transportation shipper and operates the TQM pipeline system. As a result, TQM benefits from cost and operational efficiencies from TCPL’s operations. TCPL's ownership, contractual commitment and stewardship provides strong implicit support to TQM and therefore TQM’s rating is generally aligned with TCPL's rating.
TQM currently operates under a negotiated toll settlement for the 2022–23 period approved by the Canada Energy Regulator (CER), which includes a fixed rate of return on the rate base and provides for tolling certainty under a COS regulatory framework. TQM’s capital spending was high from 2019 to 2022 for adding system capacity through brownfield compression expansion projects to service the markets in Québec, the Northeastern U.S., and Atlantic Canada. TQM has placed these projects in-service on time and on budget, and the incremental capacity has been fully contracted with TCPL to 2042. TQM funded capital expenditures with a combination of debt, equity contribution from partners, and operating cash flow. TQM's capital program is nearly complete for 2022 and capital spending in the next two years is likely to be mostly for maintenance capital. Cash flow from new projects commissioned during 2021 and 2022 has helped TQM's leverage (debt/capital ratio) to moderate in 2022, after peaking at 66.4% in 2021 and is expected to decline to 60% by the end of 2022.
DBRS Morningstar expects the Company's earnings and cash flow to be stable and predictable, supported by the long-term take-or-pay contract with TCPL. The Company has adequate liquidity to meet its funding obligations from internally generated cash flows, credit facilities, and equity contributions from its shareholders. As TCPL's long-term take-or-pay contract largely underpins TQM's cash flow, any changes to TCPL's credit profile will determine positive or negative rating changes for TQM.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.
Rating actions on TCPL are likely to have an impact on TQM’s rating. ESG factors that have a significant or relevant effect on the credit analysis of TCPL are discussed separately at https://www.dbrsmorningstar.com/research/398323/tc-energy-corporation-transcanada-pipelines-limited-rating-report.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Global Methodology for Rating Companies in the Pipeline and Midstream Energy Industry (November 3, 2022; https://www.dbrsmorningstar.com/research/404917) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.
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 under Related Documents or by contacting us at email@example.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at firstname.lastname@example.org.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577