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TransCanada Vends $484M Renewable Energy Assets to Trim Debt

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TransCanada Corporation (TRP - Free Report) recently inked a deal to do away with its wind energy portfolio for C$630 (or $484) million, in a bid to slash its huge debt which currently stands at around C$35 billion. The agreement will help TransCanada raise capital, which can be deployed into more traditional assets like oil and gas pipelines.

The Calgary-based pipeline giant will divest its entire 62% stake in Cartier wind power facilities in Quebec to Innergex Renewable Energy Inc. Subject to customary closing conditions, the deal is set for closure in the fourth quarter of 2018.

The assets to be divested include five wind farms, with a generating capacity of 590 megawatts. With the divestment, Innergex will become the sole owner of the Cartier wind facility — which is quite a significant holding of the company. The acquisition will further boost the growth prospects of Innergex, which plans to vend a stake in the facility to a new partner, albeit maintaining full ownership of Cartier Operating Entities. The acquisition is expected to add around $83 million to Innergex’s revenues.

At a time when many energy companies are targeting a green portfolio and increasing diversification, leading Canadian energy infrastructure companies like TransCanada and Enbridge Inc. (ENB - Free Report) are focusing on pulling back from renewables investment. We believe that the non-core asset monetization is a prudent move for the companies to streamline their portfolio, along with reducing debt and efficiently financing growth capex.

With the completion of the deal, TransCanada will have jettisoned its entire wind and solar portfolio. Notably, the company had offloaded its only solar power holdings last October for C$540 million to utilize the proceeds for investing in oil and gas pipeline assets. It had also parted with the hydropower and wind generation holdings in the United States in early 2017 to help fund the $13-billion buyout of Columbia Pipeline Group. 

Going against the industry trend of expanding interests in renewable holdings, TransCanada’s rival Enbridge also recently unloaded its stakes in wind and solar assets in North America and Germany. The move was part of Enbridge’s plans to reduce its huge long-term debt (more than $60 billion), acquired after its mega acquisition of Spectra Energy last year.

Recently another Calgary-based midstream company, AtlaGas Limited, also divested 35% stake in three hydro-projects in British Columbia for $922 million.

Zacks Rank and Key Picks

Currently, TransCanada carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space include Bonanza Creek Energy, Inc. (BCEI - Free Report) and Eclipse Resources Corporation (ECR - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bonanza Creek surpassed earnings estimates in each of the trailing four quarters, with an average of 215.36%.

Eclipse Resources delivered an average positive earnings surprise of 183.33% in the preceding four quarters.

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