Keystone XL Owner to Pay $1.5 Billion for Affiliate

Energy

Published: October 5, 2020 10:00 am

Pipeline operator TC Energy Corp. (NYSE: TRP), formerly known as TransCanada, announced Monday that it has offered to acquire all the outstanding common units of TC Pipelines L.P. (NYSE: TCP) in an all-stock deal valued at $1.48 billion. TC Energy will exchange 0.650 shares of its common stock for each common unit of TC Pipelines.

TC Energy already owns a controlling stake of around 25% of TC Pipelines and owns the master limited partnership’s (MLP’s) general partner. TC Energy also owns the Keystone pipeline system that transports crude oil from Western Alberta to the Gulf Coast. An extension to that system, Keystone XL, has been the subject of political and legal battles since it was first proposed in 2008.

TC Pipelines owns and operates natural gas and liquids pipelines in the northwestern United States, the upper Midwest, northern Rockies and New England. Like virtually all MLPs, the company pays a handsome dividend yield (10.3% at Friday’s closing price).

TC Energy, itself primarily a midstream (pipelines and storage) company, currently pays a 5.81% dividend yield. Issuing the company’s permit to complete the U.S. portion of the Keystone XL was one of President Donald Trump’s first acts when he took office. The pipeline had been stopped by President Obama in 2015. In 2018, a federal judge stopped Trump’s order, throwing the project into question yet again.

Bringing TC Pipelines under the ownership of TC Energy gives the new owner a stronger asset base and, theoretically at least, an improved asset base along with a better chance for better interest rates on new borrowing. In March, Moody’s Investors Service reaffirmed its Baa1 rating on the company’s senior unsecured debt and changed the outlook for TC Energy and its affiliates from stable to negative. In June, Moody’s released its first-ever negative outlook on the entire pipeline sector.

TC Energy stock traded down about 0.7% early Monday to $41.70. The stock’s 52-week range is $32.37 to $57.92 and the consensus price target is $54.51.

Common units of TC Pipelines traded up about 8% at $27.95, in a 52-week range is $18.00 to $44.65. The consensus price target is $38.89.