AltaGas acquiring Alaska natural gas assets
AltaGas Ltd. is making a major move in the U.S. market.
Traditionally an Alberta powerhouse, the natural gas specialist made a splash in the U.S. last year by scooping up natural gas utilities in Michigan and Alaska for $1.1-billion (U.S.), its largest acquisition ever. On Monday the company expanded its footprint by picking up a power generation plant and a transmission line in Southern California for $515-million.
The moves put AltaGas in similar territory as many Canadian real estate investment trusts that are shifting gears to tap into the recovering U.S. economy, scooping up assets before the full rebound is realized.
The latest asset comes to AltaGas through the purchase of Blythe Energy LLC, which owns a 507 megawatt natural gas-fired plant as well as a 67 mile electric transmission line. The plant comes with a purchase power agreement that runs until 2020 and after that AltaGas sees the potential to provide electricity to both California and Arizona.
Not only does it help AltaGas to expand in the U.S. in general, but it also increases its geographic diversification within the country. Until now, its assets were in Michigan, North Carolina and Colorado.
To fund the deal, AltaGas launched a $352-million bought deal of common shares Monday morning, co-led by TD Securities and RBC Dominion Securities. That comes after the company financed with a similar-sized equity offering roughly a year ago to fund its SEMCO Holding Corp. acquisition to pick up the assets in Michigan and Alaska.
On top of the equity deal, AltaGas is also opening a new credit line and intends on keeping its capital structure in roughly the same range it was before the deal. At the end of 2012, the company's debt-to-capitalization was 57 per cent.
However, AltaGas needs to be careful about its debt burden over the next few years. Its total debt load at the end of 2012 came in at $2.7-billion, about double its debt from the year earlier. Plus, the company has big capital spending plans over the next few years, including building a liquefied natural gas terminal that could cost between $2-billion (Canadian) and $5-billion.
The Duvernay region could be another hot expansion area for AltaGas in the near future. Encana already struck a major joint venture in the area last year and Athabasca Oil Corp. is looking to sign one of its own. On AltaGas's last quarterly conference call, management said it's watching the area very closely because some plants will likely need to be built eventually.
But because these expansion plans are so ambitious, last year rating agency DBRS Ltd. warned management that they need to keep their debt-to-capital ratio in the low-to-mid 50 per cent range or else risk being downgraded. For the moment they aren't in any trouble, but its certainly something to keep an eye on.
(Tim Kiladze is a Globe and Mail Reporter.)
Return to Streetwise home page.
Tim Kiladze