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DBRS has announced that it:

has today placed Under Review with Negative Implications the Issuer Rating, long-term debt and preferred share ratings of TransCanada Pipelines Limited (TCPL), the preferred share rating of TransCanada Corporation (TCC) and the long-term debt rating of NOVA Gas Transmission Ltd. (NGTL), a wholly owned subsidiary of TCPL (see table below).
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The rating actions follow the announcement that the National Energy Board (NEB) has released its decision (the Decision) on the Canadian Mainline 2012 Tolls Application and Restructuring Proposal (the Restructuring Proposal) submitted by TCPL’s parent, TCC, and reflect DBRS’s preliminary view that the Decision result is a structural change from the previous tolling methodology that is not consistent with the expectations that DBRS outlined in our press release on TCC dated November 22, 2012 (see below for details). DBRS believes that the Decision results in an increase in TCPL’s business risk and is likely to result in lower earnings and cash flow from the Canadian Mainline.
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While the Decision does not disallow any Canadian Mainline investment from being recovered in tolls, the NEB introduced the concept that:

“…if larger-than-forecast cost deferrals were to occur, they could represent a materialization of the Mainline’s fundamental risk and costs could be disallowed. If costs were disallowed, it would not mean that TransCanada did not have a reasonable opportunity to recover costs, but rather that events did not turn out as forecast or that this opportunity was not seized by TransCanada. A potential outcome is that the Mainline would suffer a loss – just like any other business that faces competition.”

In addition, the Decision stated that:

“Our decision enables TransCanada to meet market forces with market solutions. It is TransCanada’s responsibility to ensure that the Mainline is economically viable… TransCanada must not look to regulation to shield the Mainline from its fundamental business risk. It must address the underlying competitive reality in which the Mainline operates.”

In our November 22, 2012, press release, DBRS confirmed the ratings noted in the table below (except for the NGTL rating, which was confirmed separately on August 2, 2012) and noted that the ratings and trends reflected a number of factors. Among these factors was the expectation that the impact of the Decision would be “such that the Company is allowed to continue to recover, and earn a reasonable rate of return on, all of the costs that were incurred in the construction of the Canadian Mainline.” As noted above, while full recovery is still possible, the Decision introduced significant uncertainty into the cost recovery concept, which DBRS views as an increase in business risk.

TransCanada Corporation has the following issues outstanding: TRP.PR.A, TRP.PR.B, TRP.PR.C and TRP.PR.D, all FixedResets.

Its subsidiary Transcanada Pipelines Ltd. has the following issues outstanding: TCA.PR.X and TCA.PR.Y, both PerpetualPremiums.

This entry was posted on Thursday, March 28th, 2013 at 8:41 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.