DBRS Limited (DBRS Morningstar) confirmed Trans Québec & Maritimes Pipeline Inc.’s (TQM or the Company) Issuer Rating at A (low) with a Stable trend. TransCanada PipeLines Limited (TCPL; rated A (low) with a Stable trend by DBRS Morningstar) owns 50% of the Company and Énergir, L.P. (Énergir; 71% owned by Énergir Inc., which is rated “A” with a Stable trend by DBRS Morningstar) indirectly owns the other 50%. TQM forms an integral part of TCPL's Canadian Mainline natural gas transmission system and meets nearly all the natural gas demand in Québec through Énergir's distribution network, and also serves markets in the U.S. northeast and Atlantic Canada. The Company largely generates earnings from its long-term, cost-of-service-based take-or-pay contract with TCPL that extends to 2040 with no exposure to commodity and volume risk. TCPL manages and operates TQM and, as a result, the Company benefits from cost efficiencies from the larger TCPL Canadian Mainline operation. Because of TCPL’s strong implicit support, TQM’s rating is generally aligned with TCPL’s rating.
TQM currently operates under a negotiated five-year toll settlement for the 2017–21 period approved by the Canada Energy Regulator (formerly the National Energy Board), which includes a fixed rate of return on the rate base and provides tolling methodology certainty. DBRS Morningstar expects TQM's capital spending to be high over the 2020–22 period as the Company adds system capacity through brownfield projects to service the markets in Québec, the northeast U.S., and Atlantic Canada. TQM expects the incremental capacity to be fully contracted with TCPL to 2042. TQM expects to fund the approximately $490 million of capital expenditures (capex), including maintenance capex, with a combination of debt, equity contribution from partners, and operating cash flow. DBRS Morningstar expects leverage for 2021 to peak near 66% during the construction period, then improve to 60% in late 2022 and for the full-year 2023 as the projects are placed in service.
DBRS Morningstar expects the volatile market conditions and demand disruption caused by the Coronavirus Disease (COVID-19) pandemic to have no material impact on the Company’s earnings and cash flow, given the long-term take-or-pay contract with TCPL. TQM has not experienced any project delays and expects to meet its target completion dates. The Company has adequate liquidity to meet its obligations from internally generated cash flows, committed credit facilities, and strong sponsorship from its parents. As TCPL's long-term contract largely underpins TQM's cash flow, any changes to TCPL’s credit profile will determine positive or negative rating changes for TQM.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (November 26, 2019), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 22, 2020), and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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