TransCanada Corporation entered into an agreement to sell its remaining 30 percent interest in Gas Transmission Northwest LLC (GTN) to its master limited partnership, TC PipeLines LP.
“This agreement is part of TransCanada’s long-term strategy to drop down our remaining U.S. natural gas pipeline assets to the partnership on a more sizable and systematic basis,” said Russ Girling, TransCanada’s president and CEO. “Asset sales to the Partnership will provide us with significant cash proceeds to help fund our capital program and provide visible long term growth for TC PipeLines.”
The $446 million transaction is comprised of $253 million in cash, the assumption of $98 million in proportional GTN debt and the issuance of $95 million of new Class B units to TransCanada. The Class B units will entitle TransCanada to a distribution based on 30 percent of GTN’s annual cash distributions as follows: 1) for the first five years, 100 percent of distributions above $20 million; and 2) for subsequent years, 25 percent of distributions above $20 million.
This structure is designed to be mutually beneficial for both TransCanada and the TC PipeLines as it provides shared exposure to the potential financial upside from GTN. The transaction is expected to close on April 1.
“Through delivering on our $46 billion capital program which includes ongoing expansion in all three of our core businesses, optimization of our $59 billion blue-chip asset base and maintaining our financial strength and flexibility, we are well positioned to deliver significant sustainable growth in earnings, cash flow and dividends,” Girling added. “TransCanada’s drop down strategy provides an efficient funding vehicle that benefits our shareholders, and at the same time, allows the TC PipeLines to achieve high-quality growth and continue to diversify its asset base.”
GTN is a 1,353 mile (2,178 km) pipeline that transports natural gas under long-term contracts from the Western Canada Sedimentary Basin and the Rocky Mountains to Washington, Oregon and California. In 2014, our remaining directly held 30 percent interest in GTN generated comparable EBITDA of $43 million and distributable cash flow of $36 million.
In addition to GTN, TransCanada plans to drop down its remaining interest in the following U.S. natural gas pipelines to the TC PipeLines: 44.5 percent interest in Iroquois; 61.7 percent interest in Portland; 100 percent interest in ANR; and 53.6 percent interest in Great Lakes.
These assets generated EBITDA of $314 million in 2014, which is expected to grow to approximately $450 million of EBITDA in 2016.
TransCanada believes the TC PipeLines has the capacity to complete drop downs in excess of $1 billion per year. Beyond the sale of GTN, future drop downs will be subject to TransCanada and TC PipeLines Board approvals as well as market conditions.
TransCanada, through its subsidiaries, currently holds a 28 percent interest in TC PipeLines LP, a United States master limited partnership, which was formed to acquire, own and actively participate in the management of U.S. natural gas pipelines and related assets. J.P. Morgan acted as the exclusive financial advisor to TransCanada on this transaction.Tags: natural gas, TC Pipelines, TransCanada