Pipeline operator, TC PipeLines LP (TCP) entered into a deal with North American energy company, TransCanada Corporation (TRP) to raise its stake in each of Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC (Bison) by 45%. TC PipeLines will dish out gross proceeds of $1.05 billion including assumption of $146 million of debt.
Western Canadian and Rocky Mountain natural gas is transported through the GTN pipeline system for big utilities, producers and marketers in Washington, Oregon, Nevada and California. The Bison pipeline carries Rocky Mountain natural gas to Midwest markets.
This deal will increase TC PipeLines’ stake to 70% from the pre-existing 25% in the GTN and Bison pipeline system. Additionally, the acquisition is expected to be accretive to TC PipeLines and lower its relative exposure to the Great Lakes which is presently experiencing earnings and cash flow inconsistency.
Management at TC PipeLines intends to suggest the board of directors to increase the next quarterly distribution by 3.8% after the close of this transaction slated in Jul 2013. The closure is pending regulatory approvals and customary closing conditions. To maintain its financial position, TC PipeLines plans to fund this deal through a combination of debt and equity.
Simultaneously, TC PipeLines announced a public offering of 7,700,000 common units to fund the transaction. The partnership also plans to offer a 30-day option to the underwriters to purchase 1,155,000 additional units.
TC PipeLines currently retains a Zacks Rank #3 (Hold). This implies that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, there are certain other oil and gas production pipeline master limited partnerships in the energy sector that are expected to perform better in the coming one to three months. These include Magellan Midstream Partners LP (MMP) and Summit Midstream Partners LP (SMLP). Both these stocks currently sport a Zacks Rank #2 (Buy).
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