“`html
In a significant move for its financial strategy, AltaGas Ltd. has finalized a bought deal offering amounting to $460 million. This financing included the issuance of 11,615,000 common shares, with an additional 1,515,000 shares made available through an over-allotment option exercised by underwriters. The share offering was priced at $39.65 each, marking a key step in the company’s growth trajectory.
The announcement of this public offering came on November 3, when AltaGas collaborated with a group of underwriters led by CIBC Capital Markets, TD Securities Inc., RBC Capital Markets, and Scotiabank.
This financing aligns with AltaGas’s decision to maintain its stake in the Mountain Valley Pipeline (MVP), which the company views as a valuable long-term asset.
Table of Contents:
Purpose of Equity Financing
The net proceeds from the equity offering are earmarked for two primary purposes: reducing debt levels and supporting future growth initiatives. This approach aims to achieve a similar net decrease in leverage as would have been realized through a complete sale of the MVP, while still allowing for long-term financial strengthening through the ownership of this pipeline once expansion projects are operational.
Retaining the Mountain Valley Pipeline
AltaGas expressed enthusiasm about retaining its ownership of the MVP, believing this decision will ultimately benefit shareholders. After a thorough evaluation of potential sales, the company opted to keep its holdings in the MVP Mainline, MVP Boost, and MVP Southgate projects, which are anticipated to deliver strong returns. The decision was influenced by recent developments that changed the outlook on the monetization process, leading AltaGas to conclude that owning these assets is more advantageous.
Projected Financial Benefits
With the anticipated completion of expansion projects by the latter half of the planning period, AltaGas expects a substantial increase in project-level EBITDA from the MVP. The company has projected that even if it were to sell its stake at a recent high valuation multiple for similar assets, the resulting EBITDA multiple would still be lower than what is expected following the near-term expansions.
By raising equity capital as opposed to monetizing the MVP, AltaGas forecasts a higher normalized earnings per share (EPS) in the future. Specifically, the company anticipates an increase of $0.02 in normalized EPS for the upcoming period, $0.03 for the subsequent period, and $0.05 for the later period and beyond. This strategy not only aims to facilitate immediate debt reduction but also positions the company for enhanced financial stability as cash flows improve with the new projects.
Improved Credit Ratings
In light of AltaGas’s decision to retain ownership of the MVP and the successful public offering, both S&P Global Ratings and Fitch Ratings have revised their credit outlooks for the company. S&P shifted its outlook from Negative to Positive, affirming a BBB- rating based on anticipated enhancements in the funds from operations to debt metrics as growth projects come online. Similarly, Fitch upgraded its outlook to Stable from Negative, maintaining a BBB rating, supported by expectations of improved cash flow and the recent equity raise.
Conclusion
The recent equity financing and the strategic retention of the MVP reflect AltaGas’s commitment to a solid growth path while reinforcing its financial health. As the company prepares for future expansion, the positive adjustments to its credit ratings signal increased confidence from financial institutions, laying a strong foundation for upcoming ventures.
“`
