CU Inc., which operates ATCO gas and electric power networks, issued the largest long bond in Canadian-market history valued at $1-billion to finance a capital expenditure program and other business related expenditures.
CU accessed the bond market in 2014 with a rating of high A by Dominion Bond Rating Service (DBRS) and A by S&P; and a coupon of 4.085%.
CU Inc., a wholly owned subsidiary of Canadian Utilities Ltd., has accessed the long bond market before and has raised more than $3.7-billion since 2011. But the $1-billion, 30-year offering issued in September represents the single largest corporate long bond ever issued in Canadian market history, surpassing GE Capital Canada’s $900-million, 30-year issue in 2007.
“CU is one of the most active issuers in the market with over $6-billion of debt outstanding.” said Rob Brown, RBC co-head of debt capital markets.
Mr. Brown said the capital expenditure program is related to assets in Alberta, including the development of a number of projects that will strengthen the province’s electricity and natural gas network.
CU is in the middle of a large-multi-year capital expenditure program, in large part, to finance the building of transmission line between Edmonton and Calgary. The company has financed the program through different markets, including the bond market. Construction began in 2012 with cost of $1.8-billion.
“Part of the proceeds from this offering and a number of offerings they have done over the past few years have been used to support the capital expenditure,” said Richard Sibthorpe, managing director, BMO Canadian debt capital markets. “They have a number of other projects they are looking to deploy capital toward but that is the largest of the projects.”
The company raised $1-billion, up from an original offer of $750-million.
“If investor demand is extremely strong, as it was in the case of CU, and the book builds over a certain threshold, they have the flexibility to upsize the transaction,” Mr. Brown said. With bigger deals, there is often less flexibility to tighten pricing, Mr. Brown explained. “They chose to upsize the deal rather than price at a tighter spread.”
The company’s overall funding need for the year was more than $750-million that was originally sought. But since there was enough market demand for the offering, the issuer decided to upsize the deal to $1-billion. This eliminated any future material funding risk, Mr. Brown explained.
It is common practice for utility companies and other such companies to access the debt market to finance projects due to its low risk threshold, as opposed to the equity market where the risk is greater.
Financial Post
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