Post by
incomedreamer11 on Jul 24, 2023 10:25am
CIBC comments
Columbia Gas And Gulf Asset Sale A Big Step Forward
TC Energy announced that it has entered into an agreement sell a 40% equity interest in its Columbia Gas Transmission, LLC (Columbia Gas) and Columbia Gulf Transmission, LLC (Columbia Gulf) systems for $5.2 billion (US$3.9B) in cash to Global Infrastructure Partners (GIP).
As part of the transaction, a recapitalization and debt restructuring will take place at the new holding company in an effort to capitalize the assets at 4.75x, consistent with the company’s target leverage. Closing is expected by year-end 2023. The transaction implies an EV/EBITDA multiple of ~10.5x TC Energy’s base 2023 outlook. This compares to our assumption of an eventual $8B of total asset sales at 11.0x EBITDA.
While a lower valuation than we had assumed, this is not unusual for a minority interest (non-controlling interest) transaction. This transaction takes the pressure off future asset sales and allows the company to really cherry pick the least strategic assets / highest valuations, reducing the risk of dilution to investors. In the past, deleveraging has had a powerful impact on some stocks in our coverage universe.
We expect the company to execute additional asset sales over time in an effort to reduce leverage. TC Energy and GIP will jointly invest in annual maintenance and growth capital. GIP will fund its 40% share of gross capital expenditures, which are expected to average more than $1.3B (US$1B) annually over the next three years.
The asset sale marks a major step towards the company’s targeted deleveraging program. The original target the company stated was $5B+ which was met with this sale. The company continues to expect net capital spending of $6B to $7B annually post 2024. The 3%-5% long-term annual dividend growth rate was reiterated.