DBRS Confirms NOVA Gas Transmission Ltd. at A (low), Stable Trend

DBRS has today confirmed the Medium Term Notes and Unsecured Debentures rating of NOVA Gas Transmission Ltd. (NGTL or the Company) at A (low) with a Stable trend. The confirmation reflects NGTL’s relatively low business risk profile underpinned by (1) strong financial and liquidity support from its parent, TransCanada Pipelines Limited (TCPL: rated A (low)), (2) stable regulated operations, and (3) a growing investment base.

NGTL’s business risk profile is relatively low as its earnings are regulated by the National Energy Board (NEB) based on cost recovery plus a return on equity (ROE) providing the Company with predictable and growing cash flows. In November 2013, the NEB approved the Company’s 2013-2014 Revenue Requirement Settlement (RRS) Application. The Settlement structure is similar to the previous multi-year settlement with fixed annual operating, maintenance and administration (OM&A) costs, allowed ROE and deemed common equity. Any variance between fixed OM&A costs in the RRS and actual costs accrue to the Company. DBRS notes that the current regulatory model is stable and provides the Company a supportive framework to recover costs and earn an adequate return on its investment base over a reasonable time frame.

NGTL’s free cash flow deficits are funded by TCPL through inter-company loans, and a majority of the Company’s debt (73%: Q1 2014) is owed to TCPL. DBRS expects the Company to continue to receive financial and liquidity support from its parent. The NGTL System is the major natural gas gathering and transportation system for the Western Canadian Sedimentary Basin, connecting most of the natural gas processing plants in Western Canada to domestic and export markets. The Company’s large and growing investment base supports its strong financial profile. The Company’s investment base is set to grow as expansion projects connecting new natural gas supplies in northeastern British Columbia and western Alberta are completed (2014 to 2020) and incorporated into the Company’s regulated investment base. NGTL’s credit metrics have come under pressure due to high capital expenditures in recent years (2013: debt-to-capital 70.6%; Cash flow-to-debt: 13.6%); however, DBRS expects the metrics to improve as major projects are completed and placed in service.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is Rating Pipeline and Diversified Energy Companies (January 2014) which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.