TransCanada Corp taps JPMorgan to sell more than US$7B in assets to finance Columbia Pipeline takeover

TransCanada Corp.is working with JPMorgan Chase & Co. to find buyers in excess of US$7 billion in assets to help finance its acquisition of Columbia Pipeline Group Inc., individuals with understanding of the matter said.

The people asked to not be identified since the information is private. Assets on the market incorporate a portfolio of U.S. Northeast merchant power plants along with a minority stake in TransCanada’s Mexican natural gas pipeline business. The need for the combined assets is estimated to become US$7.1 billion, according to Moody’s Investors Service.

The merchant power assets on the market depend on wholesale electricity markets, instead of contracts, for his or her profits. Among facilities up for sale would be the Ironwood gas power plant in Pennsylvania, Ravenswood gas- and oil-fired generation plant in New York, 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 have 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 needed to acquire Columbia Pipeline, Grady Semmens, a spokesman for TransCanada, said within an e-mailed response to questions about the sales process.

“This can be a high-quality business that has served our shareholders well for several 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 out of favor using their shareholders.

“The private equity space right now advantages of relatively low cost of capital and risk appetite, so that’s where we have seen 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 high, according to Miller. He explained Ravenswood might be worth around double the US$378 per kilowatt that Dynegy Inc. decided to pay recently for U.S. power assets owned by Engie SA, implying a value of approximately US$1.98 billion.

TransCanada, located in Calgary, has stated the proceeds from the combined asset sales will help it finance the US$10.2 billion purchase of Columbia. TransCanada also is selling at least $4.2 billion in shares to help finance the deal.

TransCanada may be the largest Canadian pipeline company by market price after Enbridge Inc.

Bloomberg News