HOUSTON, Aug 05, 2020 (GLOBE NEWSWIRE via COMTEX) -- TC PipeLines, LP /zigman2/quotes/201345449/composite TCP +0.46% (the Partnership) today reported net income attributable to controlling interests of $57 million and distributable cash flow of $55 million for the three months ended June 30, 2020.
"In the second quarter of 2020, our diversified portfolio of assets generated the kind of dependable results that our unitholders expect and rely upon," said Nathan Brown, president of TC PipeLines, GP, Inc. "Our critical infrastructure was highly utilized, as demand for our transportation services was largely unaffected by the COVID-19 pandemic and the prudent operatorship of our assets through this time of crisis permitted us to continue to provide uninterrupted energy to millions of Americans and businesses. The take-or-pay nature of our shipper contracts largely insulates us from short-term volatility associated with the ups and downs of volume throughput and commodity prices, underpinning the resilience and stability of our pure natural gas midstream business.
"We remain focused on the health and safety of employees, contractors and the communities in which we operate and on maintaining the reliability of our systems," added Brown. "We continued to advance our suite of organic growth projects. PNGTS' PXP project is on track to be fully in-service this November and our Westbrook, GTN and Tuscarora XPress projects are all progressing as planned. As well, we successfully refinanced GTN's senior notes back in June, upsizing the offering to provide the necessary funding for the GTN XPress project, a notable achievement given the uncertainty in today's financial markets.
"Looking ahead, we will continue to conservatively manage our financial position and self-fund our ongoing capital expenditures. We believe we are well positioned to continue to expand and enhance our existing infrastructure and to create value for our unitholders well into the future," concluded Brown.
Second quarter highlights (unaudited)
-- Generated net income attributable to controlling interests of $57 million;
-- Paid cash distributions of $47 million;
-- Declared cash distribution of $0.65 per common unit for the second quarter of 2020;
-- Generated Adjusted EBITDA of $110 million and distributable cash flow of $55 million;
-- Maintained no outstanding balance on our Senior Credit Facility;
-- Continued permitting, engineering and construction activities on our PNGTS, GTN XPress and Tuscarora XPress projects;
-- Continued to progress North Baja XPress and Iroquois' ExC project;
-- GTN issued $175 million of 10-year fixed rate Senior Notes and established a 3-year Private Shelf Facility for an additional $75 million, thereby refinancing maturing debt and securing the funding for its GTN XPress project;
-- Extended the maturity date for Tuscarora's $23 million term loan to August 2021;
-- Great Lakes' credit rating was upgraded by two notches by Standard and Poor's to BBB+/Stable; and
-- PNGTS credit rating was upgraded by one notch by Fitch to BBB+/Stable.
The Partnership's financial highlights for the second quarter of 2020 compared to the same period in 2019 were:
Three months ended Six months ended (unaudited) June 30, June 30, (millions of dollars, except per common unit amounts) 2020 2019 2020 2019 Net income 61 57 155 157 Net income attributable to controlling interests 57 55 145 148 Net income per common unit - basic and diluted $0.78 $0.75 $1.99 $2.03 Earnings before interest, taxes, depreciation and amortization (EBITDA) 103 99 237 241 Adjusted EBITDA 110 113 248 265 Cash distributions paid (47 ) (47 ) (95 ) (95 ) Class B distributions paid - - (8 ) (13 ) Distributable cash flow 55 70 143 186 Cash distribution declared per common unit $0.65 $0.65 $1.30 $1.30 Weighted average common units outstanding - basic and diluted (millions) 71.3 71.3 71.3 71.3 Common units outstanding, end of period (millions) 71.3 71.3 71.3 71.3
-- Net income per common unit is computed by dividing net income attributable to controlling interests, after deduction of net income attributable to TC PipeLines GP, Inc. (the General Partner), by the weighted average number of common units outstanding. Refer to the "Financial Summary-Consolidated Statements of Operations" section of this release.
-- EBITDA, Adjusted EBITDA and Distributable Cashflow are non-GAAP financial measures. Refer to the description of these non-GAAP financial measures in the section of this release entitled "Non-GAAP Measures" and the Supplemental Schedule for further detail, including a reconciliation to the comparable GAAP measures.
-- Reflects distributions allocable to Class B units in the years ended December 31, 2019 and 2018 and paid in the six months ended June 30, 2020 and 2019, respectively.
Recent business developments:
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. As primary operator of our pipelines, TC Energy Corporation's (TC Energy) business continuity plans remain in place across the organization and TC Energy continues to effectively operate our assets, conduct commercial activities and execute on projects with a focus on health, safety and reliability. Our business is broadly considered essential in the United States given the important role our infrastructure plays in providing energy to North American markets. We believe that TC Energy's robust continuity and business resumption plans for critical teams, including gas control and commercial and field operations, will continue to ensure the safe and reliable delivery of energy that our customers depend upon. We anticipate that changes to work practices and other restrictions put in place by government and health authorities in response to the COVID-19 pandemic will have an impact on certain projects. While we generally believe this will not be material to our operations, we also recognize that the ultimate impact remains uncertain at this time.
Our pipeline assets are largely backed by long-term, take-or-pay contracts resulting in revenues that are materially insulated from short-term volatility associated with fluctuations in volume throughput and commodity prices. More importantly, a significant portion of our long-term contract revenue is with investment-grade customers and we have not experienced any material collection issues on our receivables to date. Aside from the impact of maintenance activities and normal seasonal factors, to date we have not seen any material changes in the utilization of our assets. Additionally, to date, we have not experienced any significant impacts on our supply chain. While it is too early to ascertain any long-term impact that the COVID-19 pandemic may have on our capital growth program, we note that we could experience some delay in construction and other related activities. For more information on our capital growth program, see "Status of Our Capital Growth Program" below.
Capital market conditions in 2020 have been significantly impacted by COVID-19 resulting in periods of extreme volatility and reduced liquidity. Despite these challenges, our liquidity remains strong underpinned by stable cashflow from operations, cash on hand and full access to our $500 million senior credit facility. During the second quarter of 2020, GTN's $100 million senior notes due in June 2020 were refinanced through the issuance of $175 million of 10-year Senior Notes with the incremental $75 million of proceeds to be used to fund the GTN XPress project through the balance of 2020. Additionally, GTN entered into a 3-year Private Shelf Agreement for an additional $75 million which will be used to finance a portion of the GTN XPress project into 2023. This refinancing demonstrates our continued access to the debt capital markets at attractive levels. Additionally, on July 23, 2020, we extended Tuscarora's $23 million unsecured term loan due in August 2020 for one year to August 2021 under generally the same terms. PNGTS is also working on increasing its borrowing capacity to accommodate the financing required for the balance of both the PXP and Westbrook XPress projects. We continue to conservatively manage our financial position, self-fund our ongoing capital expenditures and maintain our debt at prudent levels and we believe we are well positioned to fund our obligations through a prolonged period of disruption, should it occur. Based on current expectations, we believe our business will continue to deliver consistent financial performance going forward and support our current quarterly distribution level of $0.65 per common unit.
Since the pandemic began, we, together with TC Energy, have endeavored to understand and respond to the needs of the communities in which we operate. Based on the paramount needs of people in these areas, our support has focused on food security and first responder organizations. As our capital projects continue to progress, where possible, we will focus on supporting local commerce, benefiting the people and small businesses in many communities that have been significantly impacted by the COVID-19 crisis.
The full extent and lasting impact of the COVID-19 pandemic on the global economy is uncertain but to date has included extreme volatility in financial markets and commodity prices, a significant reduction in overall economic activity and widespread extended shutdowns of businesses along with supply chain disruptions. The degree to which COVID-19 has a more significant impact on our operations and growth projects will depend on future developments, policies and actions which remain highly uncertain.
Status of our growth capital program:
-- PNGTS' Portland XPress (PXP) Phase III has begun construction and is expected to be in service in late 2020;
-- GTN XPress Phase I construction is progressing as planned. Work at several points along the line requires further permitting under the normal FERC process, as do the expansion facilities that will be constructed in 2022 and 2023;
-- On June 18, 2020, FERC issued a certificate of public convenience and necessity for PNGTS' Westbrook XPress Phases II and III;
-- On June 22, 2020, ANR Pipeline Company filed a FERC application requesting authorization for its proposed Alberta XPress project that will utilize existing capacity on Great Lakes;
-- On June 24, 2020, Tuscarora filed a FERC application to increase its certificated capacity in relation to the Tuscarora XPress project;
-- North Baja XPress is still subject to (i) a final investment decision by Sempra and (ii) an environmental assessment by FERC which is expected to be issued in September 2020; and
-- Iroquois' ExC project continues to progress through its regulatory process and receipt of the FERC decision authorizing construction of the project is anticipated in early 2021.
On June 1, 2020, GTN's $100 million 5.29 percent Senior Notes matured and were refinanced through a Note Purchase and Private Shelf Agreement whereby GTN issued $175 million of 10-year Series A Senior Notes with a fixed rate coupon of 3.12 percent per annum and entered into a 3-year Private Shelf Facility for an additional $75 million. The new Series A Senior Notes do not require any principal payments until maturity on June 1, 2030. Proceeds from the Series A Senior Note issuance were used to repay the outstanding balance of the 5.29 percent Senior Notes and to fund the GTN XPress capital expenditures through the balance of 2020. GTN expects to draw the $75 million under the Private Shelf Facility by the end of 2023, the estimated completion date of GTN XPress. The Private Shelf Agreement contains a covenant that limits total debt to no greater than 65 percent of GTN's total capitalization.
On July 23, 2020, Tuscarora's $23 million unsecured term loan due August 21, 2020, was amended to extend the maturity date to August 20, 2021 under generally the same terms.
Great Lakes' credit rating upgrade:
On June 21, 2020, Standard & Poor's upgraded Great Lakes' credit rating by two notches from BBB-/Stable to BBB+/Stable primarily due to an improvement in Great Lakes' financial risk profile resulting from its increased long-term contracting levels.
PNGTS credit rating upgrade:
On July 24, 2020, Fitch upgraded PNGTS' credit rating by one notch from BBB/Stable to BBB+/Stable primarily due to an improvement in PNGTS' financial risk profile resulting from placing its PXP Phase II project in-service on November 1, 2019.
On July 23, 2020, the board of directors of our General Partner declared the Partnership's second quarter 2020 cash distribution in the amount of $0.65 per common unit payable on August 14, 2020 to unitholders of record as of August 3, 2020. The declared distribution to our General Partner was $1 million for its two percent general partner interest.
Results of operations
The Partnership's net income attributable to controlling interests increased by $2 million in the three months ended June 30, 2020 compared to the same period in 2019, mainly due to the following:
Transmission revenues - The $2 million increase in transmission revenues was largely the result of the following:
-- higher revenue at PNGTS as a result of new revenues from PXP Phase II and Westbrook XPress Phase I, both of which entered service on November 1, 2019; partially offset by
-- lower revenue at GTN due to (i) its scheduled 6.6 percent rate decrease effective January 1, 2020, and (ii) lower opportunity for the sale of discretionary services given increased natural gas storage injection rates upstream of GTN; and
-- lower revenue on Tuscarora due to its scheduled 10.8 percent rate decrease effective August 1, 2019.
Financial charges and other - The $3 million decrease was primarily attributable to higher allowance for funds used during construction (AFUDC) which served to offset interest charges and thereby caused a decline. AFUDC increased primarily due to continued spending on our expansion projects and higher maintenance capital spending.
Non-GAAP Financial Measures
Our EBITDA was higher for the three months ended June 30, 2020 compared to the same period in 2019. The $4 million increase was primarily due to higher revenue from our consolidated subsidiaries as discussed above.
Our Adjusted EBITDA was lower for the three months ended June 30, 2020 compared to the same period in 2019. The $3 million decrease was primarily due to the net effect of:
-- higher earnings from consolidated subsidiaries as discussed above;
-- lower distributions from Northern Border primarily due to higher spending on its major equipment overhauls; and
-- lower distribution from Iroquois as it satisfied its final surplus cash distribution obligation of approximately $2.6 million in the fourth quarter of 2019 and the surplus cash payments are no longer applicable.
Our distributable cash flow decreased by $15 million in the three months ended June 30, 2020 compared to the same period in 2019 due to the net effect of:
-- lower Adjusted EBITDA; and
-- higher normal-course maintenance capital expenditures at GTN as a result of increased spending on major equipment overhauls at several compressor stations and certain system upgrades.
Cash flow analysis
Operating cash flows
The Partnership's operating cashflows for the six months ended June 30, 2020 compared to the same period in 2019 were comparable due to the net effect of:
-- the timing of receipt of Iroquois' third quarter 2019 distributions from its operating activities, which we would ordinarily have received during the fourth quarter of 2019 but were instead received early in the first quarter of 2020; offset by
-- lower distributions from operating activities of our equity investments in Northern Border and Great Lakes largely due to higher maintenance capital spending at both entities.
Investing cash flows
During the six months ended June 30, 2020, the cash used in our investing activities was a net cash outflow of $88 million compared to a net inflow of $22 million in the six months ended June 30, 2019 due to the net effect of:
-- higher maintenance capital expenditures at GTN for its overhaul projects together with continued capital spending on our GTN XPress, PXP and Westbrook XPress projects; and