Bloomberg News

TransCanada to Fund Keystone XL Pipeline With Cash After Delay

November 20, 2011

Nov. 18 (Bloomberg) -- TransCanada Corp. plans to pay for the remaining $5 billion of its Keystone XL without issuing more debt since U.S. approval of the project was delayed until at least 2013, Chief Executive Officer Russ Girling said.

“We’ll fund this out of cash flow going forward,” Girling said in an interview yesterday at Bloomberg headquarters in New York yesterday.

TransCanada had planned to begin construction on the $7 billion pipeline in January 2012 at the same time as it concluded other projects as part of a $10-billion capital program, Girling said. “Given that we’re not going to concurrently do those, that eases up the burden on our financing,” he said.

The delay will benefit TransCanada’s “liquidity, leverage and free cash flow, providing the company with a greater financial cushion with which to undertake the project if and when it is fully approved,” Moody’s Investors Service said in a Nov. 11 note.

The cost to protect Calgary-based TransCanada’s bonds against default fell after the U.S. State Department announced last week that it would delay a decision on the 1,661-mile (2,673-kilometer) pipeline. Department officials said they would use the time to find a route for the pipeline away from Nebraska’s Sandhills, ecologically sensitive terrain that sits on top of a major water source for the U.S. Midwest.

Default Swaps Decline

TransCanada’s credit-default swaps, which decline as investor confidence improves, have fallen 9.1 percent from a high of 109.9 basis points on Oct. 4, when the State Department said it would decide on the project by the end of the year. The swaps are at 99.9 basis points today, according to CMA data.

The company will work together with Nebraska and U.S. officials to find an acceptable route within six to nine months, Girling said. The State Department has said the soonest it may approve the project would be early 2013. That would push back completion of the pipeline to 2015.

The Keystone XL pipeline would traverse six states and bring 700,000 barrels a day of crude from Canada’s oil sands to refineries on the Texas Gulf Coast.

--With assistance from Gene Laverty in Calgary. Editors: Jasmina Kelemen, Charles Siler

To contact the reporter on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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