Natural gas transporter TC PipeLines L.P. (TCP - Analyst Report) has priced a public offering of 7,700,000 common units at $43.85 a piece, with a 30-day over-allotment option for an additional 1,155,000 units. The offering is expected to close on May 22.
The master limited partnership (MLP) plans to use the proceeds from this offering, expected at approximately $338 million, to part finance its previously declared acquisition of 45% additional interests (from the existing 25%) in two major U.S. gas pipelines – Gas Transmission Northwest LLC and Bison Pipeline LLC – from parent TransCanada Corp. (TRP - Snapshot Report).
Calgary, Alberta-based TC PipeLines, L.P. 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.
Future 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, we remain concerned on account of lower spending by consumers and businesses on transportation fuels, which adversely affects TC PipeLines’ cash flows and distributions. Additionally, we believe that while distribution is stable, growth is likely to be a challenge for the partnership, particularly given the volatile natural gas fundamentals.
As a result, TC PipeLines currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at Enbridge Energy Management LLC (EEQ - Snapshot Report) and Kinder Morgan Management LLC as good buying opportunities. These energy pipeline partnerships –sporting a Zacks Rank #2 (Buy) – have solid secular growth stories with potential to rise from current levels.