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TC Energy credit rating under review

Cost overruns on Coastal GasLink pipelines could affect credit rating
The Coastal GasLink pipeline is 83 per cent complete, but costs have spiralled

Global credit rating agency DBRS Morningstar is placing TC Energy (TSX:TRP) and its subsidiaries under review, following the news last week that the cost of completing the Coastal GasLink (CGL) pipeline has gone up again by more than $3 billion.

Last year, TC Energy announced the estimated cost of completing the 670-kilometre natural gas pipeline from Dawson Creek to Kitimat had risen from $6.6 billion to $11.2 billion.

Last week, TC Energy revealed the estimated cost had risen again to $14.5 billion, with the possibility of an additional $1.2 billion increase, if construction extends past 2023 and into 2024.

That has resulted in DBRS Morningstar placing TC and a number of its subsidiaries “under review with negative implications.”

The review applies to TC Energy and its subsidiaries -- TransCanada PipeLines Ltd. , Nova Gas Transmission Ltd. and Trans Québec & Maritimes Pipeline Inc. 

TC Energy has blamed the cost escalations on a tight labour market, disputes with and “underperformance” by contractors, and on weather conditions. The CGL project is currently 83 per cent complete, according to the most recent construction update.

“While the company is pursuing cost mitigants and recoveries, the process is unlikely to be completed before the project is placed in service,” DBRS notes.

“DBRS Morningstar considers the increase in project cost to be credit negative as the costs are materially higher than DBRS Morningstar’s previous expectation and will have to be fully borne by TCC through the construction period.”

Credit ratings can affect a company’s ability to borrow. While TC Energy maintains an "A" credit rating with DBRS Morningstar, that could change, depending on how TC Energy manages the overruns on the CGL project.

“Despite the increase in project cost, TCC’s rating is underpinned by its strong business risk profile, and DBRS Morningstar expects any negative rating action to likely be limited at most to one notch lower from the current ratings,” DBRS states.

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