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In a significant move for its financial strategy, AltaGas Ltd. has announced the successful completion of a $460 million equity financing round. This initiative comes on the heels of the company’s decision to maintain its stake in the Mountain Valley Pipeline (MVP), a choice that reflects a long-term vision for growth and stability. The financing was executed through a bought deal offering of common shares at a price of $39.65 each, resulting in the issuance of over 11 million shares.
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Details of the equity financing
AltaGas announced its agreement with a consortium of underwriters, including major financial institutions like CIBC Capital Markets and TD Securities Inc., to facilitate this offering. The initial announcement highlighted the company’s intent not only to bolster its financial standing but also to retain its ownership of MVP, which is seen as a valuable long-term asset.
Investment and growth strategy
The proceeds from this public offering are earmarked for reducing the company’s leverage while also funding future growth initiatives. AltaGas anticipates that this strategy will yield similar short-term debt reduction benefits as a full monetization of MVP, but with the added advantage of enhanced long-term leverage through continued ownership of the pipeline.
Retaining the MVP is expected to significantly elevate AltaGas’s credit metrics and its capacity to invest in upcoming projects. The company is optimistic about the value this decision will bring to shareholders, as it positions itself for stronger financial performance in the future.
Strategic rationale for retaining MVP
AltaGas has expressed enthusiasm about keeping its stake in MVP, which includes the MVP Mainline, MVP Boost, and MVP Southgate projects. The decision to retain these assets comes after a thorough evaluation of potential buyers, where AltaGas noted substantial interest from a diverse group of stakeholders.
Positive performance indicators
Recent developments have shown promising indicators for the MVP projects. Notably, the MVP Boost is exceeding performance expectations and is anticipated to deliver robust returns. Additionally, the construction progress on MVP Southgate is encouraging, while the MVP Mainline is demonstrating strong operational outperformance. This positive trajectory affirms that maintaining ownership will be more beneficial than pursuing a sale.
Looking ahead, AltaGas forecasts a significant increase in project-level EBITDA from MVP following the completion of key expansion projects. By opting for equity financing instead of monetizing its stake, the company anticipates a rise in normalized earnings per share (EPS) over the coming years, further solidifying the advantages of retaining MVP.
Impact on credit ratings
Following AltaGas’s announcement regarding the equity financing and the retention of MVP, both S&P Global Ratings and Fitch Ratings have revised their outlooks on the company’s credit ratings. S&P upgraded its outlook to Positive from Negative, affirming a BBB- rating, which reflects an improved forecast for funds from operations to debt ratios as growth projects come online.
Similarly, Fitch adjusted its outlook to Stable from Negative while maintaining its BBB rating for AltaGas. This revision is based on the expectation of enhanced cash flow stability from utility operations, a strong demand for liquefied petroleum gas (LPG) exports, and the strategic decision to retain a 10% ownership stake in MVP.
These positive credit rating adjustments are instrumental as they enhance AltaGas’s ability to secure favorable financing options in the future, thereby supporting its growth initiatives.
Conclusion
Overall, the successful closure of the $460 million equity financing marks a pivotal moment for AltaGas. With improved credit ratings and a clear strategy focused on retaining valuable assets like MVP, the company is well-positioned to enhance shareholder value while pursuing its ambitious growth plans. As AltaGas navigates the energy infrastructure landscape, its commitment to sustainable financial practices will be key to its success.
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