TransCanada (Symbol-TRP)

[JaydoubleU]

Well, I'm glad I held off buying. I shall have to develop a new target for acquiring TRP, perhaps under $30

[reid]

TransCanada Corp said on Monday it plans to issue up to C$1.16 billion ($950 million) of stock to fund major projects like the Keystone oil pipeline, marking its second billion-dollar offering in half a year.

Does this mean that the shares that I already own have been devalued without any benefit to the shareholders. It just looks like a lot of extra risk.

[augustabound]

Does this mean that the shares that I already own have been devalued without any benefit to the shareholders. It just looks like a lot of extra risk.

Your shares have been diluted, you have less of the TRP pie. But it also depends if you feel the money is well spent. Some companies are issuing shares to help shore up their balance sheet, you mentioned that TRP is using the cash for new opportunities.
Is share dilution or debt issuance better for shareholders? Everyone has their own opinion on which is better.

[AltaRed]

As I understand it, the new equity issue will pay for the Keystone project (amongst others perhaps). It is thus indeed each person's own assessment whether this equity issue is accretive or not (whether Keystone improves TRP's corporate financial metrics or not will not be known until Keystone is fully operational).

What I don't like is the equity issue was priced at $33 rather than, at say, at $40 six months ago. On that basis alone, I would consider it dilutive. The timing is bad but TRP probably could not wait any longer to obtain the capital to fund the project.

[Moe Mentum]

Profit not Prophet wrote: "...money. $500 million in seed money."
That seed money, if provided by Alaska, is to help fund engineering, economics and environmental studies to support the Application to the US government.

A couple of years ago I finished working on a proposed major Canadian gas pipeline project that spent probably in excess of $800 million for a similar scope of work, and it still doesn't have regulatory approval.

BTW, TRP's Keystone Pipeline, mentioned elsewhere in the posting, is an old gas line that is being converted to an oil line.

[mpav]

As I understand it, the new equity issue will pay for the Keystone project (amongst others perhaps). It is thus indeed each person's own assessment whether this equity issue is accretive or not (whether Keystone improves TRP's corporate financial metrics or not will not be known until Keystone is fully operational).

What I don't like is the equity issue was priced at $33 rather than, at say, at $40 six months ago. On that basis alone, I would consider it dilutive. The timing is bad but TRP probably could not wait any longer to obtain the capital to fund the project.

Technically it is dilutive, but what is more interesting is that equity must be cheaper (or easier) than debt.

TRP is a old school utility that historically would have used tried and true debt to finance this....times are a changin.

In the end, I am still comfortable as they raised equity to fund projects as if this was just for general corporate purposes, you would have heard a huge uproar.

I am a big TRP shareholder, but interesting to see how aggressive they have become in their growth plan, while ENB has been rather muted....seems the latter is more conservative, but also more expensive.

[retireat50]

Started a position today. Would have preferred under $30, but c'est la vie. Only thing I'm unsure about is how a low interest rate environment would impact their rate base???

[jimmyjeblonski]

Started a position today. Would have preferred under $30, but c'est la vie. Only thing I'm unsure about is how a low interest rate environment would impact their rate base???

I think a rising interest rate environment is more damaging for utilities; I would like to add here but I think you are making a bet on inflation in 5 years' time - which I am not comfortable doing. My view is long term however - I think some of the smart money is entering here with a view to sell before inflation materializes.

[Shakespeare]

The utilities will likely get hammered if interest rates go up sharply, not only because their borrowing costs will rise but because they compete with bonds for funds from income-seeking investors.

That is definitely a concern in a few years, although it is possible that Canadian inflation may be mollified by C$ appreciation.

[AltaRed]

The utilities will likely get hammered if interest rates go up sharply, not only because their borrowing costs will rise

For regulated utilities such as TRP's Canadian pipelines, they would be able to pass through most, if not all, of their increased borrowing costs in shipping tolls, but they would be on their own in the non-regulated businesses. Either way, their stock prices would suffer as you suggest.

[JaydoubleU]

Rather than speculate on the direction of interest rates, I think it's a good idea to add stocks like TRP, ENB, FTS and EMA as core holdings and set up a DRIP. If prices fall in response to higher rates, you'll purchase new shares at lower prices. Yields will also rise if prices fall, thus increasing their attraction.

At any rate, they should be long-term holds (10+ years), and in such a time period, interest rates may go through a few cycles.

That having been said, I think the FED will be forced to tolerate higher inflation + lower interest rates in order to prop up the economy and reduce that ridiculous debt.

[patriot1]

That having been said, I think the FED will be forced to tolerate higher inflation + lower interest rates in order to prop up the economy and reduce that ridiculous debt.

Yes but will China?

The Fed cannot finance the US's current account deficit. That is a real deficit and the capital has to come from somewhere.

[arthur]

I no longer bother with individuals, there are enough ETF's to slice and dice, less to watch and not as volatile and some ove r6% yield.

[JaydoubleU]

I don't mean the FED will keep rates at zero while inflation rises to 5%. My guess is they'll allow inflation to go slightly over their targets, and raise only incrementally.

Guess is the operative word here!

Lots of unexpected things could happen. For instance, the savings rate in the US is rocketing higher, and its been a generation since anyone has seen Americans saving more than they spend. The repercussions can only be roughly estimated, but trillions will remain in USD and not flow out to foreign countries for starters... Also, my guess is the FED will be the first to raise globally, and just a 1/4% raise will cause an avalanche of $$$ to flow into USD as international investors guestimate the FED is tightening.

But back to TRP. Buy 300 @ $30 for a yield of 5.07%. DRIP at least 3 shares every quarter (synthetic). Estimate a 5% annual increase in the dividend. Now suppose in 3 years time rates rise to 5% and TRP falls to $25. The dividend is now $1.76, and TRP is yielding 7% (hard to imagine). You now have 336 shares and you could DRIP almost 6 shares if TRP ever fell to $25. More than likely, TRP continues to grow at roughly 5% annually and together with a 5% yield, the 10% annual return from a relatively stable stock results in a share price closer to $40. It's now yielding 4.4%, not a whole lot less than where you started, but you now have a $4000 capital gain sitting there.

To me the investment looks a whole lot more attractive than, say, MFC, with its equity exposure.

[2 yen]

Jay...second that. I dumped MFC for a loss and very happy about not owning it.

[biker]

New issue today. Closed at TDW but still open at RBCDI

TransCanada Corp.
Short Description: Offering of Common Shares via a Bought Deal
Size of Issue: Approximately $1.6 billion
Category: Common Shares
Prospectus: prospectus.20090616160153701A.EN.pdf
Product Information: Not yet available
Price: $31.50 CDN per share
Yield:
Dividend: Currently makes quarterly distributions
Maturity:
Pricing Date:
Settlement Date: On or about June 24, 2009
Symbol: Listed on the TSX under the symbol TRP
RSP Eligible: Yes
RSP Content Domestic
Lot Size: 100
Min. Quantity: 100
Max. Quantity: 10,000
Description: With more than 50 years' experience, TransCanada is a leader in the
responsible development and reliable operation of North American energy
infrastructure including natural gas pipelines, power generation, gas
storage facilities, and projects related to oil pipelines and LNG facilities. TransCanada's network of wholly owned pipelines extends more than 59,000 kilometres (36,500 miles), tapping into virtually all major gas supply basins in North America. TransCanada is one of the continent's largest providers of gas storage and related services with approximately 370 billion cubic feet of storage capacity. A growing independent power producer, TransCanada owns, or has interests in, over 10,900 megawatts of power generation in Canada and the United States.

Please refer to "Markets and Research" within WebBroker for more information on this company.

The issuer's website can be found at www.transcanada.com

Please refer to the prospectus for full details of this offering.
Prov. Restrictions:
Status: Closed

[I_DRIP]

fairly significant discount to the closing price or $33.06.

Is weds AM a buying opportunity if you were already looking to enter TRP, or are we headed back to $30?

[Michael D]

Moody's reaffirmed their rating on TRP debt, calling the issue 'neutral to positive' (from the debt side of things).

This doesn't mean that this issue is not dilutive, but if the equity can support cashflow (Keystone soon, Alaska 2 years away, debt retirement immediate) then there shouldn't be much effect. Nevertheless, I'd watch for a bounce.

Methinks most here won't be able to find the shares at $31.50, probably for the institutional investors. Just wondering, do the underwriters flip their house share into the market and sell for quick profit? This would drive the price down.

Edit: I was wrong. Reminder to self to never try to call the market.

[Bylo Selhi]

Those who missed out on the TRP IPO at $31.50 can now buy on the open market for $31.22 plus brokerage. The NAV was down to $31.02 earlier this morning

[iluvnascar]

Lots to criticize about this deal.....here's Andrew Willis' take:

TransCanada: Love the stock, hate the deal


Andrew Willis
Wednesday, June 17, 2009

When it comes to TransCanada’s latest wheeling and dealing, there’s one analyst taking the view that it’s possible to like the utility, while questioning the deals.

TransCanada took full control of the Keystone pipeline on Tuesday, and raised enough money to cover not only that acquisition, but all its planned capital spending for the next 18 months. TransCanada raised $1.6-billion in a well-received bought deal; underwriters can bump the issue to $1.8-billion if there is investor demand.

“The bad news, in our view, is that TransCanada has chosen to issue common shares immediately,” said a report Wednesday from analyst Bob Hastings at Canaccord Capital. “The real cost is the lost opportunity to issue stock at a higher price next year to finance the 2010 capital spending requirement, when Keystone is starting to show earnings and cash flow and investors can better see the investment potential.”

“Is management just worried about financing risk after recent difficult markets or does it see problems on the horizon that it has not shared with its owners yet?” said Mr. Hastings.

TransCanada sold new equity at $31.50 a share. Canaccord has a $40 one-year target price on this stock.

“While disagreeing with the timing of part of the financing, we continue to be positive on the outlook and value of the stock longer term,” said Mr. Hastings

This is the fourth time TransCanada has tapped equity markets in the past two years, as the utility paid for purchases of power plants and pipes. Mr. Hastings pointed out that the stock sales have come at progressively lower prices, which does no favours for long-time shareholders.

TransCanada sold $1.7-billion of shares in February, 2007 at $38 each, then $1.3-billion in May, 2008 at $36.50 a pop, then a second sale in May, 2008 that saw $1-billion sold at $33 a share.

In the wake of the latest stock sale, which dilutes earnings per share, Mr. Hastings trimmed his forecasts for TransCanada. He predicts the utility will earn $2 a share in 2009, down from $2.10, and $2.25 in 2010, versus his previous forecast of $2.40.

[iluvnascar]

I thought I had a good buy last week a bit under $33......

Luckily, I sold a July 32 call for $1.50 so my cost at the moment is about $31.44 and it appears I'll still have the stock when July options expire.

[haroldcrump]

Those who missed out on the TRP IPO at $31.50 can now buy on the open market for $31.22 plus brokerage.

I picked up some at 31.32 around mid-afternoon.

[JaydoubleU]

Perhaps management at TRP saw the recent recovery as an opportune time to tap the market.

As I acquire new shares through DRIP, I am pleased if I have them at $30 rather than $35

[arthur]

How safe is that generous dividend, and if they wanted to raise cash, cut the dividend to 3%

[Descartes]

How safe is that generous dividend, and if they wanted to raise cash, cut the dividend to 3%

You seem to be speculating about dividends being cut in some mature companies (TRP and, I noticed today, BCE). I gather it has led you to sell off some stock.

Care to elaborate on your thought process regarding these companies or is this just manifesting a general concern about the state of the economy?