Midstream - Pipelines | Quarterly / Earnings Reports

TC PipeLines' Bison, GTN Acquisitions Headline Q2

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TC PipeLines LP has reported that the board of directors of TC PipeLines GP, Inc., its general partner, declared the Partnership's second quarter 2013 cash distribution of $0.81 per common unit, a three cent (3.8 percent) increase over the distribution paid in first quarter 2013.

The distribution is payable on August 14, 2013 to unitholders of record as of the close of business on August 5, 2013.

Steve Becker, president of TC PipeLines GP Inc., commented: "The July 1, 2013 acquisition of additional 45 percent interests in each of GTN and Bison was well received by the market as evidenced by our successful financing activities and recent unit price performance. The increase in our cash distribution reflects the anticipated enhancement to our portfolio from the additional interests in these solid, cash flow generating assets."

The Partnership also reported second quarter 2013 Partnership cash flows of $42 million and net income of $23 million.

"The Partnership continued to perform as expected in the second quarter reflecting the long-term contracted nature of our portfolio of essential energy infrastructure assets," continued Becker. "With our strong balance sheet, we believe the Partnership is well positioned to deliver long-term value and solid results in the future."

Second Quarter 2013 Highlights:

• Raised second quarter 2013 cash distribution to $0.81 per common unit marking the 14^thconsecutive year of increasing distributions for the Partnership.
• Partnership cash flows of $42 million.
• Paid cash distributions of $43 million or $0.78 per common unit.
• Net income of $23 million.
• Acquired additional 45 percent interests in each of Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC (Bison) on July 1.
• Issued 8.855 million common units in a public offering for net proceeds of $373 million.
• Raised $500 million in bank term debt with the Partnership's existing syndicate of lenders.

Recent Developments

GTN and Bison Additional Membership Interests Acquisition - On July 1, 2013, the Partnership acquired additional 45 percent membership interests in each of GTN and Bison (the "Acquisition") from subsidiaries of TransCanada. The total purchase price of the Acquisition, subject to certain post-closing adjustments, was $1,050 million plus closing adjustments for working capital of $17 million (the "Purchase Price").

The Purchase Price consisted of (i) $750 million for the GTN membership interest (less $146 million, which reflected 45 percent of GTN's outstanding debt at the time of the Acquisition), (ii) $300 million for the membership interest in Bison and (iii) closing working capital adjustments. The resulting $921 million paid by the Partnership was financed through a combination of (i) a public offering of 8,855,000 common units at $43.85 per common unit resulting in net proceeds of $373 million, (ii) borrowing of $500 million in bank term loans, (iii) a capital contribution from the General Partner of $8 million which was required to maintain the General Partner's effective two percent general partner interest in the Partnership, and (iv) a draw on the Partnership's existing $500 million senior revolving credit facility and cash on hand.

Term Loan Facility - On July 2, 2013, the Partnership borrowed $500 million under a new term loan facility with a syndicate of lenders, which matures on July 1, 2018. The outstanding principal bears interest based on the London interbank offered rate plus an applicable margin.

Equity Offering - On May 22, 2013, the Partnership completed a public offering of 8,855,000 common units at $43.85 per common unit for gross proceeds of $388 million and net proceeds of $373 million after unit issuance costs. The General Partner maintained its effective two percent general partner interest in the Partnership by contributing $8 million to the Partnership in connection with the offering.

Cash Distributions - On July 23, 2013, the board of directors of our General Partner declared the Partnership's second quarter 2013 cash distribution in the amount of $0.81 per common unit payable on August 14, 2013 to unitholders of record as of August 5, 2013.

Liquidity and Capital Resources

Partnership Cash Flows

Partnership cash flows decreased by $10 million to $42 million in the second quarter of 2013 compared to $52 million in the same period of 2012. This decrease was primarily due to lower cash distributions from Great Lakes of $6 million and Northern Border of $4 million as compared to the same period of 2012.

The Partnership paid distributions of $43 million in the second quarter of 2013, an increase of $1 million compared to the same period in 2012.

The Partnership uses the non-GAAP financial measures "Partnership cash flows" and "Partnership cash flows before General Partner distributions" as they provide measures of cash generated during the period to evaluate our cash distribution capability. Management also uses these measures as a basis for recommendations to our General Partner's board of directors regarding the distribution to be declared each quarter. Partnership cash flow information is presented to enhance investors' understanding of the way that management analyzes the Partnership's financial performance.

Partnership cash flows include cash distributions from the Partnership's equity investments, Great Lakes, Northern Border, GTN and Bison, plus operating cash flows from the Partnership's wholly-owned subsidiaries, North Baja and Tuscarora, net of Partnership costs and distributions declared to the General Partner.

Partnership cash flows and Partnership cash flows before General Partner distributions are provided as a supplement to GAAP financial results and are not meant to be considered in isolation or as substitutes for financial results prepared in accordance with GAAP.

Contractual Obligations

At June 30, 2013, there was no outstanding balance on the Partnership's $500 million senior revolving credit facility. The zero balance was a result of a repayment of the revolving facility with the proceeds from the Partnership's equity offering. Upon close of the Acquisition, the revolving facility was redrawn to $360 million. The Partnership was in compliance with the covenants of the credit agreement at June 30, 2013.

Net Income

For the three months ended June 30, 2013, net income decreased by $10 million to $23 million compared to $33 million in the second quarter of 2012. This decrease was primarily due to lower equity earnings from Great Lakes and increased general and administrative expenses.

Equity earnings from Great Lakes were nil in the second quarter of 2013, a decrease of $8 million compared to the same period in 2012. The decrease was due to lower revenue resulting from contracted capacity at lower rates and volumes in the second quarter of 2013 compared to the same period in 2012.

General and administrative expenses were $4 million in the second quarter of 2013, an increase of $2 million compared to the same period in 2012. This increase was due to expenses incurred in relation to the acquisition of additional interests in GTN and Bison.