Debenture – Common Shares
AltaGas Utilities Inc. (“AUI”) and AltaGas Utility Holdings Inc. (“AUHI”) applied for approval for the issuance of debentures and common shares pursuant to section 26(2)(a) of the Gas Utilities Act. AUI and AUHI requested approvals no later than June 28, 2016 so that interest payments on its applied-for debentures would mirror the interest payment dates of the most immediately preceding 10-year term debt from AltaGas Ltd., their parent company.
Debentures
AUI and AUHI requested the following as part of their debenture application:
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Approval for AUI to issue an inter-company debenture of $45 million to AUHI maturing on April 7, 2026 (the “AUI 2016 Debenture”);
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Approval for AUHI to issue to AltaGas Utility Group Inc. an inter-company debenture of $45 million maturing on April 7, 2026 (the “AUHI 2016 Debenture”);
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Approval for the issue date of the AUI 2016 Debenture and AUHI 2016 Debenture of June 29, 2016;
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Approval of the annual coupon rate of 4.12 percent per annum, and issue costs of 0.08 percent per annum; and
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Approval of the purposes of the issues.
AUI and AUHI submitted that the proceeds from the AUHI 2016 Debenture would be used by AUHI to subscribe for the AUI 2016 Debenture. The proceeds from the AUI 2016 Debenture would then repay a previous $20 million AUI debenture to AUHI, which expires on June 29, 2016, with the remainder being used to finance AUI’s 2016 capital expenditures, working capital requirements, and maintenance of an appropriate capital structure.
AUI submitted that it has been its practice to obtain debt financing through its parent company through a series of inter-company transactions.
The AUC explained its prior findings in Decision 2009-176, where it held that debt rates (or coupon rates) incurred by the parent company should be applied to the debt of AUI.
On April 7, 2016, AltaGas Ltd. issued $350 million of 10-year medium term notes with a coupon rate of 4.12 percent, maturing on April 27, 2026. Accordingly, the AUC held that the coupon rates requested by AUI and AUHI were consistent with prior decisions.
The AUC found that, based on the opinion provided by counsel for AUI and AUHI, that the issuance of debentures was made in accordance with applicable law. The AUC also determined that the purposes of the debentures as set out by AUI and AUHI were reasonable, and met the requirements of Section 26(2)(a) of the Gas Utilities Act.
The AUC noted that, although the debentures were approved, the AUC’s approval did not remove the duty from AUI and AUHI to demonstrate that the debentures ultimately acquired must have been obtained and used prudently, which the AUC noted would be examined in AUI and AUHI’s next cost-of-service application.
Common Shares
AUI and AUHI requested the following as part of their common shares issuance application:
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Approval of AUI’s issuance of up to 269,795 Class A common shares of AUI to its direct parent, AUHI, for a maximum amount not to exceed $12 million;
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Approval for AUHI to issue up to 3,279,902 common shares of AUHI to its direct parent, AltaGas Utility Group Inc., for a maximum amount not to exceed $12 million; and
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Approval of the purposes of the issues.
AUI and AUHI estimated the maximum net proceeds from the issuance of AUHI share would amount to $12 million. As noted in the debenture applications, these funds would be used by AUHI to subscribe for the AUI shares.
AUI and AUHI submitted that the proposed issuance of shares would have no effect on the control of the corporations. AUI submitted that the proposed share issuance would result in a 42 percent common equity ratio, which would approximately reflect its approved ratio in Decision 2191-D01-2015, while taking into consideration its own 2016 capital requirements.
The AUC found that, based on the opinion provided by counsel for AUI and AUHI, that the issuance of common shares was made in accordance with applicable law. The AUC also determined that the purposes of the issuance of common shares as set out by AUI and AUHI were reasonable, and met the requirements of Section 26(2)(a) of the Gas Utilities Act.
Accordingly, the AUC approved the application as filed.
The AUC noted however that AUI and AUHI were still required to demonstrate in their respective next cost-of-service application, that the debentures acquired had been obtained and used prudently.
