TCP Increases Stake In 2 Natural Gas Pipelines

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Estimated Price
1.1BB
Description

Plans to buy a larger stake in two interstate natural gas transmission pipelines.

TCP PipeLines LP (NYSE: TCP) plans to buy a larger stake in two interstate natural gas transmission pipelines from TransCanada Corp. (NYSE: TRP) for $1.05 billion in cash and assumed debt.

TC PipeLines already holds a 25% stake in both pipelines, Gas Transmission Northwest LLC and Bison Pipeline LLC. After the deal closes, which is expected in July, the company’s stake in the pipelines will increase to 70%.

The 1,353-mile GTN pipeline system transports natural gas from western Canada and the U.S. Rocky Mountains for large utilities, produces and marketers in Washington, Oregon, Nevada and California. The 308-mile Bison pipeline transports natural gas from the Rocky Mountains to the Midwest. Both pipeline systems are supported by long-term ship-or-pay contracts that extend through the end of the decade.

The purchase price includes about $904 million in cash and $146 million in assumed debt and is subject to the customary adjustments at closing.

“This acquisition is the largest transaction in the partnership’s history and significantly increases the partnership future cash flows and earnings,” said Steve Becker, President of TC PipeLines GP Inc.

The company bought the larger stake in the pipelines to improve its long-term cash flow stability and predictability by increasing the percentage of total cash flows derived from long-term ship-or-pay contracts. The transaction will also reduce the company’s relative exposure to the Great Lakes, which is currently undergoing earnings and cash flow variability, he said.TC PipeLines said it would fund the purchase through a combination of debt and equity.

TransCanada, meanwhile, said it will use proceeds from the sale for the company’s capital spending program. “The proceeds from the sale of a 45% interest in both GTN and Bison will contribute to funding a portion of TransCanada’s capital program that includes $26 billion of commercially-secured projects,” said Russ Girling, president and chief executive of TransCanda.

“Selling assets to TC PipeLines, LP not only provides us with an attractive source of capital, but it also allows the Partnership to grow its earnings, cash flow and distributions to its unitholders. The possibility of selling further interests in our mature U.S. natural gas pipeline assets, through a series of dropdowns, provides us with a significant amount of financial flexibility,” Girling said.

Once the transaction is complete, TransCanada, through its subsidiaries, will continue to hold an approximately 30% direct ownership interest in both pipelines.

CitiGroup gave TC PipeLines financial advice for the deal, while Orrick Herrington & Sutcliffe LLP was the company’s legal counsel.

TCP has an interest in 5,560 miles oF federally-regulated interstate natural gas pipelines in the U.S. and Canada. The company is based in Houston. TransCanada, based in Calgary, holds a 33% interest in TC PipeLines LP.