TC Energy Corporation has announced that it has entered into an agreement to monetise a 40 percent interest in its Columbia Gas Transmission, LLC and Columbia Gulf Transmission, LLC systems. Columbia Gas and Columbia Gulf will be held in a new joint venture partnership with Global Infrastructure Partners. Total proceeds for the transaction are expected to be $5.2 billion (US$3.9 billion) in cash, to be paid at closing, subject to certain customary adjustments. The value of the 40 percent equity interest implies an enterprise value to a comparable EBITDA1 multiple of approximately 10.5 times TC Energy’s base 2023 outlook and expected run-rate capital structure for the partnership entity.
TC Energy will continue to operate the systems, focusing on maximising value through safe operations, reliability of service and operational excellence. TC Energy and GIP will jointly invest in annual maintenance, modernisation and sanctioned growth capital to further enhance system capacity and reliability. GIP will fund its 40 percent share of gross capital expenditures, which are expected to average more than $1.3 billion (US$1 billion) annually over the next three years.
“Today’s announcement represents a major milestone in achieving our 2023 strategic priorities. To date, we have advanced our deleveraging goals by delivering on our $5+ billion asset divestiture programme ahead of our year-end target, while maximising the value of our assets and safely executing major projects, such as Coastal GasLink and Southeast Gateway,” said François Poirier, TC Energy’s president and chief executive officer. “As part of our ongoing capital rotation program, we continue to evaluate opportunities to further our deleveraging objectives and optimally fund our secured capital programme. Our commitment to strong balance sheet fundamentals and disciplined sanctioned net capital spending of $6 to $7 billion annually post 2024 will continue to provide the foundation for a long-term sustainable annual dividend growth rate of three to five percent.”
Supporting the energy transition through critical natural gas infrastructure
The Columbia Gas and Columbia Gulf pipelines span more than 15,000 miles across a highly integrated North American natural gas network and are underpinned by strong long-term natural gas fundamentals and a rate-regulated commercial framework. These assets deliver a substantial portion of daily US natural gas demand, including approximately 20 percent of US liquefied natural gas export supply. The resiliency of these systems combined with their ability to connect the largest and lowest-cost natural gas basin to key demand centres and global export markets, uniquely positions them to remain a central player in further supporting the transition to lower-emitting energy sources.
“Long-term fundamentals continue to underscore the role of natural gas in a sustainable energy future. Our partnership with GIP will provide additional investment capacity to originate and execute Columbia Gas and Columbia Gulf projects to meet that need,” continued Poirier. “This, and future partnerships, across our portfolio will strengthen our ability to enable the energy transition while enhancing balance sheet strength. We look forward to combining the collective strengths of TC Energy’s strategic asset base and strong operating expertise, as well as GIP’s proven investment track record and extensive relationships in the global LNG market.”
“We are pleased to partner with TC Energy on energy infrastructure assets that are critical to the North American and global natural gas markets,” said Bayo Ogunlesi, Global Infrastructure Partners’ chairman and chief executive officer. “We welcome the opportunity for this joint venture to leverage the combined assets and capabilities of TC Energy and GIP to serve growing market needs for cleaner fuels, energy security and energy affordability.”
Transaction details
The transaction is expected to close in the fourth quarter of 2023, subject to customary closing conditions.
In connection with the transaction, Columbia Pipeline Group, Inc. will contribute all of its equity interests in its wholly-owned subsidiaries, Columbia Gas and Columbia Gulf, to a newly formed wholly-owned entity, Columbia Pipelines Operating Company, LLC, which will be directly held by a newly formed wholly-owned entity, Columbia Pipelines Holding Company, LLC. CPHC represents the entity through which TC Energy and GIP will each hold their equity interest. At closing of the transaction, TC Energy and GIP will enter into a Limited Liability Company Agreement and Operation and Maintenance Services Agreement that provide GIP with certain customary rights commensurate with its 40 percent equity ownership interest while preserving TC Energy’s flexibility to efficiently and effectively operate the assets.
As CPG’s equity interests in Columbia Gas and Columbia Gulf constitute substantially all of the assets of CPG, in accordance with the indenture governing CPG’s outstanding 4.50 percent Senior Notes due 2025 and 5.80 percent Senior Notes due in 2045 with a total outstanding principal amount of US$1.5 billion (collectively, the “Existing Notes” and such indenture, the “Existing Notes Indenture”), CPOC and CPG will enter into a supplemental indenture to the Existing Notes Indenture pursuant to which CPOC will assume all of CPG’s obligations under the Existing Notes and the Existing Notes Indenture and CPG will be concurrently released from its obligations thereunder.
As part of the transaction TC Energy expects to undertake a recapitalisation and debt restructuring of CPHC and CPOC. TD Securities Inc. and Citi acted as financial advisers to TC Energy on the transaction and have provided capital commitments with respect to expected bank financing. Mayer Brown is acting as legal adviser to TC Energy.
For more information visit www.tcenergy.com
