CIBCEQUITY RESEARCH
September 24, 2024 Earnings Update
ALTAGAS LTD.
Hybrid Notes Issuance Reduces Leverage Metrics
Our Conclusion
AltaGas closed a US$900MM hybrid notes offering, which was executed
along with a cross-currency swap to minimize foreign exchange risk. The
note proceeds will be used to reduce outstanding senior notes and bank
debt, and the 50% equity treatment of the hybrids should help reduce full-
year rating agency leverage metrics by ~0.35x, improving financial flexibility.
We reiterate our Outperformer rating and maintain our discounted cash flow
(DCF)-based price target of $40.
Key Points
Hybrids Issuance: AltaGas issued US$900MM fixed-to-fixed hybrid notes
due 2054, which are callable on the first reset date of October 15, 2034. The
company also executed cross-currency swaps, which convert the notes’
underlying proceeds and interest costs into Canadian dollars and reduce the
effective interest rate from the 7.2% coupon rate to 6.9%.
Preferred Shares Conversion: The company also announced that all
outstanding Series H preferred shares would be converted automatically into
Series G shares on a one-to-one basis on September 30. The final dividend
on the Series H shares for Q3/24 will be paid on September 27.
Financial Impact: The company’s 2024 year-end leverage will be reduced to
5.16x from 5.50x. After the Mountain Valley Pipeline (MVP) accumulates
more operating history, a potential sale of the company’s 10% stake in H1/25
should further reduce leverage. As holding MVP reduces leverage by 0.15x,
we would not expect a sale without it being accretive to leverage metrics. We
do not envision a big capital deployment following the hybrid issue, but rather
expect it to provide greater financial flexibility.