DBRS Maintains Trans Québec & Maritimes Pipeline’s Ratings Under Review with Developing Implications

DBRS Limited (DBRS) has today maintained its status of Under Review with Developing Implications on the Issuer Rating and Senior Unsecured Bonds rating of Trans Québec & Maritimes Pipeline Inc. (TQM or the Company). TQM’s ratings of A (low) were placed Under Review with Developing Implications on March 17, 2016, following TransCanada Corporation’s (TCC; TQM’s 50% indirect parent) announcement to acquire Columbia Pipeline Group, Inc. (CPG). Please refer to DBRS press release “DBRS Places TransCanada Corporation & Related Issuers Under Review – Developing following Columbia Pipeline Group, Inc. Acquisition Announcement” on March 17, 2016, and the DBRS press release “DBRS Comments on TransCanada’s Strategic Initiatives Announcement” on November 1, 2016.

TQM is an integral part of the Canadian Mainline system owned by TransCanada Pipelines Limited (TCPL; rated A (low), Under Review with Developing Implications; 100% owned by TCC), and is regulated by the National Energy Board with regard to its transportation tolls and its facilities. Virtually all of the Company’s earnings are from a long-term cost-of-service-based take-or-pay contract with TCPL, covering 100% of the throughput volumes and eliminating all commodity and volume risk for the Company. As a result, the DBRS rating for TQM is highly influenced by the credit quality of TCPL. TQM meets nearly 60% of the total demand for natural gas in Québec, through the Gaz Métro Limited Partnership’s (71% owned by Gaz Métro Inc. rated “A,” with a Stable trend; TQM’s 50% parent) distribution network.

The Company’s capital expenditure needs have been modest historically but are expected to trend higher in the medium term. TQM has managed its debt levels and dividend payments to maintain the regulated 60% debt/40% equity capital structure. Cash flow-to-debt and EBIT interest coverage ratios of 18.8% and 4.27 times, respectively (last 12 months (LTM) ended September 30, 2016), have remained relatively strong. DBRS ex¬pects the Company to finance any future cash flow deficits by managing its dividends and issuing debt prudently in order to maintain its debt-to-capital ratio within regulatory levels.

As per the November 1, 2016, DBRS press release mentioned earlier, TCC expects the USD 3.7 billion sale of its U.S. Northeast Power assets to close in the first half of 2017. Consequently, DBRS has maintained the status of Under Review with Developing Implications on the ratings of TCC and its related issuers, including TQM. DBRS will further review the information related to the asset sales as it becomes available and aims to resolve the Under Review status once the asset sale transactions have closed.

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.

The applicable methodology is Rating Companies in the Pipeline and Diversified Energy Industry (December 2015), which can be found on our website under Methodologies.

This rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process. DBRS have access to the accounts and other relevant internal documents of the rated entity or its related entities.