Pipeline operator, TC PipeLines LP (TCP) announced the closure of its previously announced public offering of 8,855,000 common units at $43.85 a piece, including 1,155,000 units fully exercised by the underwriters.
TC PipeLines plans to use the proceeds from this offering, expected at approximately $338 million, to part finance its previously declared acquisition of a 45% additional interest (from the existing 25%) in two major U.S. gas pipelines – Gas Transmission Northwest LLC and Bison Pipeline LLC – from parent TransCanada Corp. (TRP).
Calgary, Alberta-based TC PipeLines maintains interests in six pipeline systems: the Northern Border Pipeline Company, Great Lakes Gas Transmission, L.P, the Tuscarora Gas Transmission Company, the North Baja Pipeline, LLC, Bison Pipeline, LLC, and Gas Transmission Northwest, LLC.
Growth prospects for the partnership have improved considerably following the North Baja Pipeline acquisition and the subsequent capping of general partner IDRs at 25% (which allows limited partners to benefit from the partnership’s growth). We also like TC PipeLines’ steady cash-flow generating pipeline assets, which provide stability and financial capacity to deliver cash distributions in a disciplined manner.
However, TC PipeLines reported weaker-than-expected first-quarter 2013 results on the back of lower transportation rates in the Great Lakes along with low income from other pipeline systems. Earnings per unit came in at 52 cents, missing the Zacks Consensus Estimate by 13 cents. Comparing year over year, earnings fell 26.8% from a profit of 71 cents.
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 Enbridge Energy Management LLC (EEQ) and Kinder Morgan Management LLC (KMR). Both these stocks currently sport a Zacks Rank #2 (Buy).
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