TransCanada Corp.is working with JPMorgan Chase & Co. to find buyers in excess of US$7 billion in assets to assist finance its purchase of Columbia Pipeline Group Inc., people with knowledge of the problem said.
The people asked not to be identified since the information is private. Assets on the market incorporate a portfolio of U.S. Northeast merchant power plants and a minority stake in TransCanada’s Mexican gas pipeline business. The value of the combined assets is estimated to be US$7.1 billion, according to Moody’s Investors Service.
The merchant power assets on the market rely on wholesale electricity markets, instead of contracts, for his or her profits. Among facilities on the market would be the Ironwood natural gas power plant in Pennsylvania, Ravenswood gas- and oil-fired generation plant in Ny, hydroelectric power assets in Colonial, the Kibby wind power operation in Maine and Ocean State Power gas generation facilities in Rhode Island.
The power plants could attract interest from private equity investors such as Blackstone Group LP, D.E. Shaw & Co., Macquarie Group Ltd. and Riverstone Holdings LLC, said Travis Miller, an analyst at Morningstar Inc. in Chicago. Strategic peers including Calpine Corp. and NRG Energy Inc. also may take a look, he explained.
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Power Portfolio
Selling TransCanada’s U.S. Northeast power portfolio is the greatest choice to generate the funds required to acquire Columbia Pipeline, Grady Semmens, a spokesman for TransCanada, said within an e-mailed response to questions about the sales process.
“This is a high-quality business which has served our shareholders well for many years,” Semmens said.
Representatives from JPMorgan, Riverstone, Calpine, Macquarie and D.E. Shaw declined to comment, while representatives from Blackstone and NRG didn’t immediately respond to requests for comment.
Private equity investors are better equipped to buy the assets, Miller said, because publicly traded information mill generally short on capital to invest on merchant power that’s from favor using their shareholders.
“The non-public equity space right now benefits from relatively low cost of capital and risk appetite, so that’s where we have seen probably the most likely buyers for merchant assets,” Miller said
While TransCanada paid US$2.9 billion for Ravenswood in 2008, it would be difficult in the present environment to fetch sales price that top, based on Miller. He explained Ravenswood could be worth around double the US$378 per kilowatt that Dynegy Inc. agreed to pay last month for U.S. power assets owned by Engie SA, implying something of approximately US$1.98 billion.
TransCanada, located in Calgary, has said the proceeds from the combined asset sales will help it finance the US$10.2 billion acquisition of Columbia. TransCanada is also selling at least $4.2 billion in shares to help finance the deal.
TransCanada is the largest Canadian pipeline company by market value after Enbridge Inc.
Bloomberg News
