TransCanada Corp. is undertaking a series of multibillion-dollar moves to help pay for a major U.S. acquisition earlier this year while cementing annual gains in its dividend of up to 10 per cent.
TransCanada, one of Canada's largest pipeline companies, said late Tuesday it will issue as much as $3.5-billion of stock in its second massive bought deal of 2016.
It also expects to garner $3.7-billion (U.S.) from the sale of its U.S. Northeast power generation operations. Proceeds from the sale and share issue will go to paying down part of a bridge loan it took on when it bought Columbia Pipeline Group Inc. for $10.2 billion on July 1. That purchase gave TransCanada established assets in the burgeoning Appalachian shale gas region of the United States as many new proposed pipeline projects face increasing regulatory hurdles and environmental opposition.
"The sale of our U.S. northeast merchant business will serve to further enhance the stability and predictability of our earnings and cash flow streams going forward," said chief executive officer Russ Girling said on a conference call.
The bought deal and U.S. power generation assets sale announced Tuesday mark a change in the Calgary-based company's plans for funding its Columbia purchase. It previously said it would offer interests in its growing natural gas pipeline business in Mexico.
TransCanada is holding on to all of its Mexican business despite receiving "credible, binding" bids for a minority interest in the assets, said Mr. Girling.
"While it was our plan to sell a minority interest in the business, we determined that we would maximize short and long term shareholder value by retaining full ownership interest and instead accessing capital markets," he said.
"This allows us to fully capture the future growth associated with the portfolio," Mr. Girling said, adding it is also consistent with maintaining a simple corporate structure.
Cementing its hold on Columbia, TransCanada has also agreed to buy all the units of Columbia Pipeline Partners LP for $17 (U.S.) each for a total of $915-million – an amount about eight per cent higher than TransCanada initially offered in September. The deal, expected to close in the first quarter of 2017, will boost TransCanada's stake in the assets to 100 per cent from 91.6 per cent.
TransCanada noted Columbia's $7.7 billion (U.S.) growth program brings its portfolio of near-term commercially secured projects to more than $25 billion.
"We are well-positioned to prudently fund our industry-leading capital program," Mr. Girling said, though the company noted the creation of an at-the-market equity issuance program is still a possibility.
The moves are also expected to help the company achieve annual dividend increases at the higher end of its previously stated range of 8 per cent to 10 per cent through 2020.
In the bought deal, TransCanada will offer 54.8-million shares at $58.50 (Canadian) apiece. Underwriters, led by Toronto-Dominion Bank, Bank of Montreal and Royal Bank of Canada, have an overallotment option that would add another 10 per cent to the proceeds. The company went to the market in March, raising a Canadian record $4.4-billion.
Meanwhile, TransCanada reported earnings a day earlier than scheduled – recording a net loss for the third quarter of $135-million (Canadian), or 17 cents a share. That compares with net income of $402-million, or 57 cents, in the same period a year ago. The results were impacted by a $656-million after-tax impairment tied to the sale of its U.S. northeast power business.
With a file from Jeff Lewis and Kelly Cryderman