TC Energy to sell 40% of Columbia Gas, Columbia Gulf for $3.9B

TC Energy entered into an agreement to monetize a 40 per cent interest in its Columbia Gas Transmission and Columbia Gulf Transmission 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 C$5.2B, or $3.9B in cash, to be paid at closing, subject to certain customary adjustments. The value of the 40 per cent equity interest implies an enterprise value to a comparable EBITDA 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 maximizing value through safe operations, reliability of service and operational excellence. TC Energy and GIP will jointly invest in annual maintenance, modernization and sanctioned growth capital to further enhance system capacity and reliability. GIP will fund its 40 per cent share of gross capital expenditures, which are expected to average more than C$1.3B, or $1B, annually over the next three years. 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 U.S. natural gas demand, including approximately 20 per cent of U.S. liquified 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. 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 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, which will be directly held by a newly formed wholly-owned entity, Columbia Pipelines Holding Company. 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 per cent 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 per cent Senior Notes due 2025 and 5.80 per cent Senior Notes due in 2045 with a total outstanding principal amount of $1.5B, 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 recapitalization 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.