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TransCanada’s massive financing set for Canadian record on heavy demand

A depot used to store pipes for Transcanada Corp.'s planned Keystone XL oil pipeline is seen in Gascoyne, N.D. in this Nov. 14, 2014 file photo. TransCanada sued the U.S. government in the U.S. federal court Wednesday, alleging President Barack Obama's rejection of the Keystone XL pipeline exceeded his power under the U.S. Constitution.

ANDREW CULLEN/REUTERS

Only Barrick Gold Corp. has ever raised more money in a single shot -- and that record isn't likely to last long.

To help fund its acquisition of Columbia Pipeline Group, TransCanada Corp. is raising $4.2-billion by way of a bought deal, making it the second largest financing of this type in Canadian history. Barrick raised $4.33-billion in September, 2009, to unwind its hedge book.

The gravy? There's a good chance TransCanada's takes the top spot, should the underwriters utilize the over-allotment option -- a move that would push the deal size to $4.42-billion. There's also a chance the financing is upsized before the over-allotment is used, which is what happened with Barrick. The gold miner initially set out to raise $3.2-billion.

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TransCanada's deal is already oversubscribed, according to someone familiar with the offering, which means there is more demand than shares available for sale.

TransCanada is selling shares at a 7.4 per cent discount to ensure they get sold -- a common tactic for bought deals. The average discount for the three largest deals in Canadian history -- two by Barrick, one by CI Financial Corp. -- is 6.2 per cent. However, TransCanada's shares climbed 2.6 per cent Thursday, and are up 9 per cent since the start of the year now that oil prices are recovering.

RBC Dominion Securities and TD Securities are co-leading the offering, which pays underwriters a 3.25 per cent. If the deal size isn't increased, the investment banks will make $137-million collectively.

Notably, Canadian dealers did not advise on the merger. Wells Fargo Securities served as TransCanada's sole financial adviser, while Goldman Sachs and Lazard Freres advised Columbia. However, Canadian law firms provided legal advice, with Blake, Cassels & Graydon LLP working alongside Osler, Hoskin & Harcourt LLP -- as well as with Mayer Brown LLP.

The massive deal extends a string of billion-dollar bought deals by Canadian dealers. Last year, Canada had 11 of them, which was abnormally high.

Already 2016 has four more – for Enbridge Inc., Algonquin Power and Utilities Corp., Franco-Nevada Corp. and now TransCanada. The Enbridge deal in February, worth $2.3-billion, was heavily oversubscribed, proving Canadian investors are happy to support pipeline companies they trust.

Pembina Pipeline Group sold $300-million of its own shares on Thursday as well, and that offering is also oversubscribed, according to someone familiar with the transaction.

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Canadian investors have also shown a willingness to step up and buy shares in deals that help finance big acquisitions. Recent examples include Emera Inc.'s $6.5-billion purchase of Teco Energy in September and Element Financial Corp.'s $8.6-billion acquisition of General Electric Co.'s fleet management business.

Editor's note: A earlier version of this post incorrectly stated the deal size should the overallotment option be exercised. These options normally total 15 per cent of the deal; TransCanada's is only five per cent.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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