TransCanada offers $2 billion in debt
By Dan Healing, Calgary Herald
January 6, 2009
CALGARY - A $2-billion US debt offer launched Tuesday by TransCanada PipeLines Ltd. was lauded by energy analysts who say it will be well-received in a market that has discounted most oil and gas companies’ equity.
The funding will be earmarked by the pipeline arm of Calgary-based TransCanada Corp. to replace maturing debt facilities, pay for capital projects and fund ongoing corporate activities, said company spokesman Terry Cunha.
He said TransCanada will raise $750 million US in 10-year notes yielding 7.125 per cent and $1.25 billion US from 30-year bonds paying 7.625 per cent.
Steven Paget, an analyst at First Energy Capital Corp., said TransCanada has about $540 million in debt coming due this year and needs to raise money to pay for its portion (recently increased to 80 per cent) of the $5.8-billion US Keystone Pipeline project.
“They could have credit lines to do it but this is not a bad time (to issue debt),” he said.
“This is not surprising, it was expected because their capital program is large,” added Bob Hastings, pipeline analyst with Canaccord Adams, who figures TransCanada’s total spending this year will come in at about $5.6 billion.
He added the cost of the debt is reasonable.
“The fact is, for most of my career, if you can raise money at seven per cent, people consider that a dream,” said Hastings.
Paget agreed.
“Some of their historical yields are in the mid-six per cent range but, of course, it’s a different environment today,” he said.
The bonds give investors a relatively low-risk exposure to the energy business through a company whose regulated assets have a set rate of return.
“These are backed by assets that are not particularly sensitive to commodity prices,” said Paget.
“They have a relatively attractive cash yield and I think, on a very macro basis, people see something that yields approximately seven per cent — and that doesn’t look so bad compared with the stock market.”
Also Tuesday, Devon Energy Corp., the biggest independent U.S. oil and gas producer and parent of Devon Canada Corp., launched a $1.2-billion US note sale, according to International Financing Review.
The sale includes $500 million in five-year notes expected to yield four percentage points over U.S. Treasuries and $750 million in 10-year notes expected to yield 3.85 percentage points over Treasuries.
In November, TransCanada closed its second big stock offering of the year and secured a $950-million credit facility.
It sold 30.5 million common shares to a group of underwriters for $33 each, raising gross proceeds of $1 billion, an amount earmarked for Keystone and to repay short-term debt.
In May, the company raised
$1.1 billion to pay for its purchase of the Ravenswood power plant in New York City.
The 3,345-kilometre Keystone line will carry up to 590,000 barrels a day of oilsands crude from Alberta to refineries in the U.S. Midwest.
dhealing@theherald.canwest.com
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