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Announcement:

Moody's affirms TransCanada Corporation's A3 issuer rating

22 Dec 2006
Moody's affirms TransCanada Corporation's A3 issuer rating

Toronto, December 22, 2006 -- Moody's Investors Service announced today that it has affirmed the ratings of TransCanada Corporation (TRP) and its subsidiaries following the announcement that TRP has entered into an agreement with El Paso Corporation to acquire 100% of ANR Pipeline Company and ANR Storage Company (collectively, ANR) and a 3.55% interest in Great Lakes Gas Transmission (GLG) for a purchase price of US$3.4 billion including assumed debt of US$457 million. In a related transaction it was announced that, TC Pipelines, LP, would acquire the remaining 46.45% of GLG from El Paso Corporation for US$962 million including US$212 million in assumed debt. TRP is the sole general partner and largest unitholder (13.4% interest) of TC Pipelines, L.P. whose financial results are fully consolidated in those of TRP. The ratings affirmed include TRP's issuer rating (A3, stable), TransCanada PipeLines Limited's ratings (A2 senior secured, A2 senior unsecured, A2 issuer, A3 preferred security, Baa1 preferred stock and Prime-1 short-term; stable), NOVA Gas Transmission Ltd.'s A2 senior unsecured (stable) and Gas Transmission Northwest Corporation's A2 senior unsecured (stable).

When completed Moody's anticipates that the announced transactions will increase TRP's consolidated assets by approximately C$5.8 billion (approximately 24% of total assets as of September 30, 2006) and will increase FFO by approximately C$460 million on an annualized basis. Moody's considers the acquired assets to be a good fit with TRP's existing gas pipeline assets including its existing 50% interest in GLG. GLG interconnects with TRP's mainline system and ANR further increasing TRP's extensive pipeline network. The acquired assets are largely FERC regulated and well contracted albeit for relatively short durations. Moody's considers the business risk profile to be relatively low although somewhat higher than that of TRP's Canadian pipeline assets. Moody's believes that when completed the proposed transaction will result in a small improvement in TRP's business risk profile by reducing its exposure on a percentage basis to the higher risk power business.

Moody's ratings affirmation reflects the expectation that the transaction will be financed in a manner that permits the TRP to continue to strengthen its financial profile relative to its 2005 fiscal year end results. While Moody's anticipates some weakening of TRP's 2007 credit metrics relative to its results for the last 12 months ended September 30, 2006, Moody's expects the 2007 credit metrics to be generally stronger than those of fiscal 2005 thereby demonstrating progress toward the strengthening of TRP's financial profile that Moody's has indicated is necessary to support TRP's issuer rating at the A3 level. It is Moody's understanding that TRP expects to have the permanent financing structure for the transaction in place relatively shortly after the close of the transaction. While Moody's recognizes that there is execution risk associated with raising the equity and debt required to permanently finance a transaction of this magnitude, we believe that this is manageable for TRP given its access to both the Canadian and US equity and debt markets. Moody's ratings affirmation is based on our understanding that the transaction will be financed in a relatively conservative manner and that TRP will continue to further strengthen its financial profile over the next two to three years. To the extent that TRP chooses to finance the transaction in a more aggressive manner or fails to successively strengthen its financial profile following the completion of the acquisition such that it achieves metrics of FFO/Debt in the high teens and FFO/Interest cover of approximately 4.0x by 2009, Moody's is likely to reconsider TRP's ratings.

TransCanada is a gas pipeline and unregulated electricity generation company based in Calgary, Alberta.

Toronto
Andrew J. Kriegler
Managing Director
Structured Finance Group
Moody's Canada Inc.
(416) 214-1635

Toronto
Allan McLean
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

No Related Data.
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