PrefBlog

Veresen Inc. has announced:

it will pursue the sale of its power generation business and will suspend its Premium Dividend™ and Dividend Reinvestment Plan. Proceeds from the divestiture will be invested to develop Veresen’s significant inventory of contracted capital projects in the core natural gas and NGL infrastructure business.
…
Divestiture of Power Business and Funding Strategy

Veresen’s power business, which consists of approximately 625 MW of primarily renewable and gas-fired generation, is expected to contribute EBITDA of approximately $100 million in 2016 and had asset level debt financing of $382 million at June 30, 2016. Veresen has engaged TD Securities Inc. as the company’s sole financial advisor on the divestiture of the power business.

Veresen intends to initially apply the proceeds of the sale of the power business to reduce its debt outstanding and subsequently fund the remaining equity component of projects currently under construction through 2018. At the end of the second quarter, approximately $535 million of the aggregate $1.4 billion of capital required to complete Veresen’s existing capital projects had been incurred, with a remaining equity component of approximately $350 to $450 million. The enhanced funding plan will meaningfully improve the company’s balance sheet strength at closing, eliminating the need for external equity financing for these projects and increasing growth on a per share basis.

Dividend and Suspension of DRIP

Veresen’s Board of Directors has confirmed the annualized dividend rate of $1.00 per Common Share. As a result of the growth and diversification of Veresen’s businesses over the last five years, the dividend is now underpinned entirely by distributable cash from take-or-pay and fee-for-service businesses with a weighted average contract life of over eight years.

In response, DBRS has announced that it:

has today placed the Issuer Rating, Senior Unsecured Notes rating and Preferred Share rating of Veresen Inc. (Veresen or the Company) Under Review with Negative Implications. The rating actions follow the Company’s announcement that it will pursue the sale of its power generation business and will suspend its Premium Dividend and Dividend Reinvestment Plan (DRIP) from August 2016. Proceeds from the divestiture of the power business will be invested to develop Veresen’s significant inventory of approximately CAD 1.4 billion of contracted capital projects in the core natural gas and natural gas liquids infrastructure business. The Company will also maintain its current dividend payout.

DBRS believes that the above-noted announcement is negative with respect to Veresen’s business risk profile.
…
DBRS notes that Veresen had previously planned to fund its share of the large capital expenditure program at Veresen Midstream by raising equity through its DRIP. Veresen’s decision to suspend the DRIP and maintain its high dividend payout is expected to erode the Company’s equity base from current levels, resulting in higher non-consolidated leverage. The net proceeds from the proposed sale of power assets after repaying related subsidiary level debt (CAD 382 million at June 30, 2016) are expected to fund Veresen’s large capital expenditure program. Although, this results in an initial reduction in leverage, Veresen will likely need incremental borrowings to fund its capex and dividend commitments going forward. As a result, the Company’s non-consolidated credit metrics are likely to be weak in the medium term.

Overall, DBRS believes that the weakness in Veresen’s business risk profile will not be mitigated by any meaningful improvement in the Company’s financial risk profile and will likely result in lower ratings. DBRS recognizes that there are execution risks related to the sale of the power business, and any delays in the execution and change in market conditions could affect the Company’s financial risk profile. Consequently, DBRS has placed Versen’s ratings Under Review with Negative Implications. DBRS expects any downgrade of the Company’s ratings to be one notch. DBRS will further review the details relating to the sale of the power business as they become available, with a view to resolving the Under Review with Negative Implications status.

Affected issues are VSN.PR.A, VSN.PR.C and VSN.PR.E.

This entry was posted on Thursday, August 4th, 2016 at 10:10 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.