DBRS Announces TRP Under Review-Negative

DBRS has announced that it:

has placed the ratings of TC Energy Corporation (TCC or the Company), TransCanada PipeLines Limited (TCPL; TCC’s wholly owned subsidiary), Nova Gas Transmission Limited (NGTL), and Trans Québec & Maritimes Pipeline Inc. (TQM) Under Review with Negative Implications. The ratings of NGTL and TQM are based on the ratings of TCPL. The rating actions follow the updated cost estimate of $14.5 billion (previously $ 11.2 billion) provided by the Company for the Coastal GasLink Project (the Project) with a potential for additional increases of $1.2 billion if construction extends well into 2024. While the Company is pursuing cost mitigants and recoveries, the process is unlikely to be completed before the Project is placed in service. DBRS Morningstar considers the increase in Project cost to be credit negative as the costs are materially higher than DBRS Morningstar’s previous expectation and will have to be fully borne by TCC through the construction period.

DBRS Morningstar’s ratings on TCC and TCPL are based on the expectation that TCC will maintain its overall financial risk profile in the “A” rating category. However, the increase in Project cost has reduced the Company’s financial flexibility, and TCC will have to depend on the successful execution of its proposed asset divestiture program to bridge the funding gap and maintain its financial risk profile. While the Company has an extensive portfolio of contracted assets with stable cash flows that could be monetized, the size of the divestiture program does entail execution and timing risks. In addition, the impact of the asset sales on cash flow and possibly the Company’s business risk profile is uncertain at this time.

DBRS Morningstar expects to resolve the Under Review Status after reviewing the Company’s updated financing plan and having more certainty with regard to the scope of the asset divestiture program. Despite the increase in Project cost, TCC’s rating is underpinned by its strong business risk profile, and DBRS Morningstar expects any negative rating action to likely be limited at most to one notch lower from the current ratings.

This follows the S&P announcement of 2023-2-1:

  • TC Energy Corp. (TC) recently announced an updated cost estimate for its Coastal GasLink project. The increase of approximately C$3.3 billion will bring the estimated total cost of the project to C$14.5 billion. The increased project cost, to be realized over the remainder of construction, is in addition to the C$9.5 billion in 2023 capital expenditure (capex) that the company announced in November 2022.
  • TC has indicated that it is committed to asset sales to fully fund its capital program and the increased costs of Coastal GasLink Project; however, the timing of these sales and the net impact on leverage and EBITDA are uncertain at this time.
  • As a result, S&P Global Ratings revised the outlook to negative from stable and affirmed its ‘BBB+’ issuer credit rating on TC.
  • The negative outlook indicates the uncertainty regarding the timing and amount of the anticipated asset sales necessary to ensure the company can achieve a debt-to-EBITDA ratio of less than 5.0x, consistent with the rating.

The negative outlook reflects the uncertainty regarding any asset sales in support of the company’s announced capital program as well as the increased costs at the Coastal GasLink project. Although we believe TC has assets that would be attractive to potential purchasers, it is not clear as to the impact on business risk of such sales or whether the ultimate amount and EBITDA impact of such sales will allow the company to reduce its leverage consistent with the rating. Based on our base-case assumption, we forecast debt to EBITDA of about 5.4x in 2023 and 5x in 2024.

We could lower the rating if we believe that the asset sales net of any EBITDA impact will not be sufficient to offset the company’s increased capex, including the higher costs at the Coastal GasLink project or any of the other projects, such that debt to EBITDA will remain above 5.0x or FFO-to-Debt will fall below 13% on a consistent basis.

We could revise the outlook to stable if we believe the company has undertaken sufficient asset sales or other credit positive measures such that debt to EBITDA will remain below 5.0x and FFO-to-debt will remain above 13% on a consistent basis.

Affected issues are TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D, TRP.PR.E, TRP.PR.F, TRP.PR.G, TRP.PR.H and TRP.PR.I.

One Response to “DBRS Announces TRP Under Review-Negative”

  1. fsabbagh says:


    Should we start thinking about selling our preferred TRP shares?


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