DBRS Confirms Ratings on Trans Québec & Maritimes Pipeline Inc.

DBRS Limited (DBRS) confirmed its rating of A (low) with a Stable trend on the Issuer Rating and Senior Unsecured Bonds rating of Trans Québec & Maritimes Pipeline Inc. (TQM or the Company). TQM is an integral part of the Canadian Mainline system owned by TransCanada Pipelines Limited (TCPL, rated A (low), with a Stable trend; TQM’s 50% parent, 100% owned by TransCanada Corporation) and is regulated by the National Energy Board (NEB) with regard to its transportation tolls and facilities. Virtually all of the Company’s earnings are from a long-term cost-of-service-based take-or-pay contract with TCPL with a current term to 2030, 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 most of the total demand for natural gas in Québec through Gaz Métro Limited Partnership’s (Gaz Métro, rated “A,” with a Stable trend; 71% owned by Gaz Métro Inc., TQM’s 50% parent) distribution network.

In February 2017, the NEB approved TQM’s five-year toll settlement for the period 2017–2021. The toll settlement was largely identical to previous settlements and provides tolling certainty until 2021. In line with the toll settlement, TQM refinanced its debt in March 2017 through early redemption of the $100 million Series L Senior Unsecured Bonds due September 15, 2017, with proceeds of a five-year $100 million private placement senior note (not rated by DBRS) maturing on December 31, 2021. TQM also extended the maturity of its bank term loan and revolving credit facilities from August 2018 to December 31, 2021.

The Company’s capital expenditure (capex) needs have been modest historically but are expected to trend higher in the next two years as the Company completes projects to increase system capacity and take advantage of potential expansion opportunities. 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 18.7% and 3.92 times, respectively (last 12 months (LTM), ended September 30, 2017), have remained relatively strong. DBRS expects 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.

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 principal methodology is Rating Companies in the Pipeline and Diversified Energy Industry, which can be found on dbrs.com under Methodologies.

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