TC PipeLines L.P.
) announced weaker-than-expected third-quarter 2012 results,
owing to lower transportation rates in Great Lakes along with
less interest rates derived from the use of floating debt.
TC PIPELINES (TCP): Free Stock Analysis
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The Calgary, Alberta-based master limited partnership (MLP) -
with stakes in over 5,550 miles of federally regulated U.S.
interstate natural gas pipelines that cater to domestic and
Eastern Canadian markets - reported earnings per unit (EPU) of 64
cents, missing the Zacks Consensus Estimate by a penny.
Comparing year over year, earnings dipped 14.7% from the year-ago
profit of 75 cents.
Distribution & Cash Flows
TC PipeLines announced its third-quarter 2012 cash distribution
of 78 cents per unit ($3.12 per unit annualized), representing a
1.3% increase over the year-earlier quarter. The distribution
will be paid on November 14 to unit holders of record as of
November 5, 2012.
Total partnership cash flows during the quarter were up 11.6%
from the year-earlier level at $48.0 million, mainly on the
receipt of cash distributions from TC PipeLines' interests in the
Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC -
that were purchased from the parent
) in May last year. These were somewhat negated by the decrease
in cash distributions from Great Lakes.
TC PipeLines paid distributions of $43.0 million during the
quarter, up 2.4% from the year-earlier level, driven by an
increase in the number of common units outstanding.
Pipeline Systems Performance
The partnership's equity income from the Great Lakes plunged 57%
year over year to $6 million in the quarter, reflecting less
transmission revenues stemming from a drop in short-term rates.
Northern Border Pipeline:
Equity income from Northern Border Pipeline was $18.0 million,
down 5.3% year over year.
GTN and Bison:
TC PipeLines' equity income from the GTN and Bison pipeline
systems came in at $5.0 million and $2.0 million, respectively,
remaining flat with respect to the prior-year quarter.
As of September 30, 2012, TC PipeLines had $313.0 million
outstanding on the $500.0 million revolver portion of its senior
credit facility. The partnership had long-term debt (including
current portion) of $692 million, representing
debt-to-capitalization ratio of 34.5%.
During the quarter, TC PipeLines incurred maintenance capital
expenditure of $4.0 million and expended $1.0 million on growth
Rating & Recommendation
We are maintaining our long-term Neutral recommendation on TC
PipeLines units, as we see limited near-term price upside.
Over the last few years, the partnership has consolidated its
business, achieved through a combination of organic efforts and
accretive acquisitions. We believe that with investments in
low-risk energy infrastructure assets, TC PipeLines will be able
to provide stable cash distributions, going forward.
However, we remain concerned as TC PipeLines' value will likely
remain clouded, as the partnership struggles with weak natural
gas fundamentals. Additionally, we remain wary of cost overruns
on expansion projects (which lead to lower returns).