[url=https://www.ratingsdirect.com/Apps/RD/controller/ArticleCM]On April 4, 2007, Standard & Poor's Ratings Services revised its outlook on Calgary, Alta.-based TransCanada PipeLines Ltd. (TCPL) to stable from negative. At the same time, Standard & Poor's also revised its outlook on subsidiaries ANR Pipeline Co. and NOVA Gas Transmission Ltd. Standard & Poor's affirmed its ratings, including the 'A-' long-term corporate credit rating, on TCPL and its subsidiaries.
A major expansion at Bruce Power, the company's partially owned investment in Ontario-based nuclear power, constrains the ratings. This subsidiary is proceeding on a project that will restart two dormant units at the Bruce Power nuclear facility. It also provides power price guarantees and floors that will significantly bolster its earnings stability. Nevertheless, we believe that the C$4 billion expansion (of which TCPL is responsible for half) involves significant construction risk due to the high historic incidence of cost overruns on nuclear projects. That portions of this project have never been undertaken before amplifies our concerns. To date, the project appears to be proceeding favorably but we still believe there is significant potential for material cost overruns. Our ratings accordingly incorporate some tolerance for cost overruns on this project.
TCPL's balance sheet is highly leveraged, with the high level of cash flow stability providing an offset. We expect that funds from operations (FFO) interest coverage will continue to exceed 3x, FFO-to-total debt will exceed 15%, and debt-to-capital will remain at about 60%. High leverage levels relate to the large proportion of pipeline assets (which can tolerate higher leverage levels) on the company's balance sheet. Given that TCPL intends to structure its balance sheet to maintain its current ratings, we expect that any major acquisitions would continue to involve a significant equity component.[/url]