OREANDA-NEWS. Fitch Ratings has upgraded Columbia Pipeline Group, Inc.'s (CPGX) Long-Term Issuer Default Rating (IDR) and senior unsecured rating to 'BBB+' from 'BBB-'. The ratings have been removed from Rating Watch Positive. The upgrade is driven by CPGX's acquisition by TransCanada Corporation (TransCanada; NR), an entity with a stronger credit profile. The transaction closed on July 1. CPGX's Short-Term IDR and Commercial Paper Rating have been upgraded to 'F2' from 'F3' in accordance with Fitch's mapping of short-term ratings. At the same time, those ratings were withdrawn. The Rating Outlook is Stable.

CPGX was acquired for approximately $13 billion including $10.2 billion in cash and debt of $2.8 billion which was assumed by TransCanada.

KEY RATING DRIVERS

The rating for CPGX was upgraded given TransCanada's assumption of CPGX's $2.8 billion of debt. TransCanada announced the acquisition in March 2016. The acquisition provides TransCanada with CPGX's strong growth projects and enhances its geographic diversity and asset base.

Fitch views the acquisition of CPGX as favorable for TransCanada. CPGX's assets will further increase TransCanada's diversity. TransCanada anticipates an annual benefit of approximately $250 million a year from cost saving and financing. Importantly, CPGX allows TransCanada to participate in the Marcellus/Utica shale plays and provides a significant amount of organic growth activity throughout CPGX's existing platform. CPGX already has significant pipeline infrastructure in the Marcellus and Utica regions and plans to expand its position with $7.3 billion in pipeline projects.

The acquisition also provided TransCanada with increased stability of its cash flows. On a pro forma basis, TRP increased its 2015 EBITDA from regulated and contracted gas pipelines to 63% from 57%. Total EBITDA from regulated and long-term contracted assets increased to 92% from 90% also on a pro forma basis. The planned sale of TransCanada's merchant power business will further increase the percentage of stable cash flows from regulated and contracted assets.

In addition, TransCanada now owns 46.5% of CPGX's publicly traded MLP, Columbia Pipeline Partners LP (CPPL) though limited partnership units and the general partnership interest. This ownership was transferred to TransCanada which already owns 27.3% of its own MLP, TC Pipelines, LP (TCP) through limited partnership units and the general partnership interest. TCP owns interests in U. S. pipelines.

Ratings concerns for CPGX are focused on integration which is not deemed to be a material risk.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for TransCanada include:

--The acquisition of CPGX closed on July 1, 2016 giving TransCanada six months of EBITDA from CPGX but all of the debt.

--Capital spending at TransCanada of roughly C$30 billion 2016 through 2019 inclusive of maintenance spending of C$450 to C$500 million and CPGX spending.

--Spending funded at TransCanada with a focus on maintaining a capital structure near current 60%/30%/10% debt/common equity/preferred equity & junior subordinated debt split.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

Positive rating action not anticipated in the normal course of business. Leverage at TransCanada defined as debt/adjusted EBITDA (adjusted EBITDA = EBITDA less income from equity investments plus distributions from equity investments) below 5.0x on a sustained basis could lead to a positive rating action for CPGX.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Sustained worsening of credit ratios at TransCanada due to increased leverage or poor operating performance.

--Leverage as defined as debt/adjusted EBITDA above 6.0x on a sustained basis.

--Materially adverse regulatory outcome at TransCanada at any of its major EBITDA providing regulated businesses.

LIQUIDITY

TransCanada has adequate liquidity to manage its businesses, including CPGX. Effective July 1, CPGX paid off its revolver and its letters of credit were converted into letters of credit under an existing facility of TransCanada PipeLine USA Ltd., a wholly owned subsidiary of TransCanada.

Liquidity at TransCanada is comprised of predictable cash flow generated from operations, committed credit facilities, its ability to access debt and equity markets in both Canada and the U. S., portfolio management including additional drop downs of U. S. natural gas pipeline assets into TC PipeLines, LP and cash on hand.

At Dec. 31, 2015, TransCanada had C$8.9 billion in unsecured credit facilities used to support commercial paper programs.

Fitch upgrades the following:

Columbia Pipeline Group, Inc.

--Long-Term IDR to 'BBB+' from 'BBB-';

--Senior unsecured rating to 'BBB+' from 'BBB-';

--Short-Term IDR and Commercial Paper Rating to 'F2' from 'F3' and withdrawn.

The Rating Outlook is Stable.