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Rating Action:

Moody's affirms TC PipeLines' Baa2 rating, stable outlook

Global Credit Research - 07 Jul 2017

Approximately $1.2 billion of rated debt obligations affected

Toronto, July 07, 2017 -- Moody's Investors Service ("Moody's) affirmed the Baa2 senior unsecured rating of TC PipeLines, LP (TCP). The outlook remains stable.

RATINGS RATIONALE

"As an owner of a portfolio of natural gas pipelines and a subsidiary of TransCanada, TC PipeLines exhibits a low business risk profile, generates stable contracted revenues and benefits from the support of a strong sponsor", said Moody's VP-Senior Credit Officer Gavin MacFarlane. "These positive attributes mitigate the company's relatively small scale and high leverage", added MacFarlane.

The financial, strategic and operational linkage between TCP and its sponsor TransCanada Pipelines Limited (TransCanada, A3 stable) is one of the primary drivers of TCP's rating. The company is an important component of the TransCanada family, serving as one of the funding vehicles supporting its C$23 billion near term capital plan. In addition, TCP has no employees of its own and relies heavily on its sponsor for its managerial and operational functions as well as liquidity needs.

All of TCP's revenues are generated by a portfolio of FERC-regulated, interstate, natural gas pipelines that exhibit amongst the lowest business risk operational profiles within the midstream space. TCP currently wholly or partially owns a diverse set of eight distinct pipelines that primarily transport Canadian, Rockies and Bakken gas to end markets in the Western, Upper MidWest and Northeastern U.S. A substantial portion of the pipeline's capacity is backed by long-term, firm agreements where payment is made regardless of volume shipped.

The contracted nature of its revenue stream offsets some of the risk posed by TCP's high leverage. With a debt to EBITDA run-rate ratio of slightly below 5.5x, TCP's leverage metrics have limited room before breaching our potential downgrade threshold of above 5.5x. Our financial analysis of the company focuses on a proportionally consolidated approach to capture the debt and EBITDA generated at TCP's partially owned assets. Nonetheless, we expect that the stable nature of TCP's revenues, along with its record of relying on a balanced funding approach when acquiring assets from its parent, will result in stable financial metrics on a sustained basis.

TCP's stable rating outlook reflects our expectation that the ratio of debt to EBITDA will be sustained below 5.5x over the long-term horizon, and that the individual pipelines will continue to generate consistent and predictable cash flow. The stable outlook also incorporates our expectation that leverage ratios could weaken, on a short-term and temporary basis, as a result of asset drop downs from its parent.

TCP's rating could be upgraded if financial leverage improved such that debt to EBITDA was sustained below 4.5x (on a proportionally consolidated basis). The rating could also come under upward pressure if it were to adopt a less aggressive dividend payout policy.

TCP's rating could be downgraded if its financial metrics weakened such that debt to EBITDA was above 5.5x (on a proportionally consolidated basis). An increase in the company's business risk profile and/or a weakening in the relationship with TransCanada could also cause a downgrade.

Founded in 1998 and based in Houston, Texas, TCP is a master limited partnership that owns and operates eight regionally diverse natural gas pipeline systems across the U.S.

Outlook Actions:

..Issuer: TC PipeLines, LP

....Outlook, Remains Stable

Affirmations:

..Issuer: TC PipeLines, LP

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

The principal methodology used in these ratings was Midstream Energy published in May 2017. Please see the Rating 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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jim Hempstead
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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