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Rating Action:

Moody's Affirms TransCanada on Acquisition Announcement; Outlook Stable

Global Credit Research - 18 Mar 2016

Approximately USD20 Billion of Rated Debt Securities Affected

Toronto, March 18, 2016 -- Moody's Investors Service affirmed the A3 senior unsecured ratings for TransCanada Pipelines Limited (TCPL) and the Baa1 issuer rating for TCPL's parent, TransCanada Corporation (TransCanada). The rating outlooks for both companies are stable. For a list of actions, see below. The rating affirmation follows TransCanada Corporation's announcement that it agreed to acquire Columbia Pipeline Group, Inc. (CPG: Baa2 /stable) for US$13.0 billion, including the assumption of US$2.8 billion of debt. At the same time, TransCanada announced its plans to divest its 4.5GW portfolio of US Northeast Power assets and a minority interest in its Mexican natural gas pipeline business to help finance the acquisition of CPG.

Outlook Actions:

..Issuer: TransCanada Corporation

....Outlook, Remains Stable

..Issuer: TransCanada PipeLines Limited

....Outlook, Remains Stable

Affirmations:

..Issuer: TransCanada Corporation

.... Issuer Rating, Affirmed Baa1

..Issuer: TransCanada PipeLines Limited

.... Issuer Rating, Affirmed A3

....Junior Subordinated Regular Bond/Debenture, Affirmed Baa1

....Multiple Seniority Shelf, Affirmed (P)A3

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)A3

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

RATINGS RATIONALE

"The transaction is a modest credit positive for TransCanada over the long-term horizon, because the business risk profile will improve thanks to the purchase of the low risk Columbia Pipeline Group and the sale of the higher risk generation assets," said Gavin MacFarlane, Vice President and Senior Analyst. "The acquisition financing plan includes the issuance of US$3.2 billion of equity combined with estimated asset sales of US$7.1 billion, and we do not see any new debt. As a result, TransCanada has mitigated near-term downward pressure on the financial profile, even though structural subordination will increase."

TCPL's A3 rating is driven by its generally predictable and growing cash flow, its large size and diverse portfolio. Offsetting these key strengths are the execution risks associated with a sizeable, multi-year capital expenditure program, which puts pressure on financial metrics. The recent rejection and ongoing uncertainty around Keystone XL, and our forecasted ongoing high levels of debt, highlight these pressures. The long term issuer rating on parent TransCanada is one notch below the consolidated rating of A3 as a result of its structural subordination to TCPL.

The acquisition of CPG provides TransCanada with assets that connect the fastest growing basin in North America to attractive markets. It has a sizeable capital program with approximately US$7.3 billion of capital projects with relatively low levels of execution risk compared to other TransCanada projects. The capital expenditure profile provides visibility to growth in earnings and cash flow.

The stable rating outlook reflects our expectation that TCPL will successfully execute on its acquisition of CPG and its asset divestitures to help finance the acquisition. In addition, we see a slow but steady improvement in the financial profile, including the ratio of debt to EBITDA falling to below 5x in the next two to three years and funds from operations (FFO) to debt rising to the midteen's over the same time period, which incorporates the bulk of CPG's construction program.

TransCanada PipeLines Limited (TCPL: A3 stable) is the principal subsidiary and debt issuer of TransCanada Corporation (TransCanada: Baa1 stable, issuer rating), headquartered in Calgary, Alberta. TransCanada is an energy infrastructure company with three business segments: Natural Gas Pipelines (57% of 2015 EBITDA including regulated gas storage of 250 Bcf), Liquids Pipelines (22% of 2015 EBITDA), and Energy (21% of 2015 EBITDA including unregulated gas storage of 118 Bcf). TCPL is the GP of and owner of a 28% interest in TC PipeLines, LP (TCP: Baa2 stable), a publicly traded master limited partnership (MLP) that owns a portfolio of TransCanada's US interstate gas pipelines.

The principal methodology used in these ratings was Natural Gas Pipelines published in November 2012. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's credit rating agency in Canada" on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gavin MacFarlane
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's Affirms TransCanada on Acquisition Announcement; Outlook Stable
No Related Data.
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