What’s in a name? Alectra enters the debt market for the first leaves and leaves with $675 million

Financialpost.com
May 10, 2017
By Barry Critchley

It’s anybody’s guess to wonder how much the marketers and other wizards were paid to come up with the name Alectra Inc.

But that’s the new name for the company that resulted from the recent merger of Enersource, Horizon Utilities and PowerStream and the subsequent purchase of Hydro One Brampton. The four-way deal that affected 15 communities north and west of Toronto over an 1,800 square kilometre area became effective at the end of February 2017.

At the time of the announcement, the world was told that the consolidation would create the second largest municipally-owned electric utility by customer base in North America, second only to the Los Angeles Department of Water and Power.

Investors got their first look at the new company on Wednesday when it raised $675 million in the domestic bond market. (Previous issues by the four predecessor companies are now under the Alectra name.) The unsecured debentures came with a 10-year term and featured a coupon of 2.488 per cent. CIBC and TD were joint leads and book runners on the financing. BMO was a co-agent.

The net proceeds from the offering are being earmarked to retire outstanding indebtedness under an acquisition bridge facility and to refinance an Infrastructure Ontario loan. The rest will be used for general corporate purposes.

DBRS Limited assigned a provisional rating of A with a Stable trend to the issue. Alectra is believed to be the first new corporate issuer in the domestic market this year, but, according to Harry Koza from Thomson Reuters, there have been at least two other first-time borrowers: Laurentian Bank unveiled its first issue of NHA mortgage backed securities while Pepsico Inc. unveiled its first Maple Bond, a $750 million, seven year raise for which it paid 2.15 per cent.

TransCanada Trust is next

Waiting in the wings is a planned offering by TransCanada Trust. That issuer is planning to sell 60-year notes with the rate being set for the first 10 years. After that there are two interest rate resets: from 2027 to 2047 and from 2047 to 2077. The issue is heavily structured.

According to a filing, the objective of the trust is “to acquire and hold the Trust Assets comprised primarily of subordinated notes issued by TransCanada PipeLines Limited in order to generate funds for payment of the principal, interest, the redemption price and the amount payable on purchase for cancellation, if any, and any other amounts, in respect of its debt securities.”

The idea behind all this: to provide TCPL with a cost-effective means of raising capital which “qualifies for Basket “C” equity treatment by Moody’s Investors Service, Inc. for “Intermediate Equity Credit” by Standard & Poors Ratings Services and for 50% equity credit by Fitch Ratings Inc.

Earlier this year, the trust completed a US$1.50 billion offering in the U.S. market, having raised US$1.2 billion in 2016 and US$750 million in 2015.