CPPIB, Williams Form Infrastructure Joint Venture

Canada’s top pension fund is teaming with an Oklahoma natural gas pipeline and infrastructure business to the tune of $3.8 billion.

The Canada Pension Plan Investment Board’s ($277.8 billion) joint venture will be with natural gas and natural gas products operator Williams Cos. The deal will set up a new platform that helps optimize Williams’ midstream developments in the Marcellus and Utica basins, the US’s largest gas-producing areas.

The move includes Williams’ Ohio Valley Midstream and Utica East Ohio Midstream System, which it just acquired from Momentum Midstream.

Pipeline and infrastructure investments in the region spanning Pennsylvania, Ohio, and West Virginia have picked up steam in recent years. Last year, the Canada fund and Encino Energy backed an agreement for a private company to buy all of Chesapeake Energy’s natural gas assets in Ohio.

Canada’s pension board will invest $1.34 billion for a 35% stake. Williams, which has the other 65%, will run the business while also include the projects’ financial results in its fiscal statements.

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The Utica East Ohio system processes and performs molecule-separating procedures in natural gasses and natural gas liquids in eastern Ohio’s Utica Shale basin. The platform looks to combine the two systems (Ohio Valley and Utica East) to simplify capital spending in the region. This will also cut operating and maintenance fees while helping local natural gas producers.

“These transactions create a platform for continued optimization and growth, provide deleveraging, reduce capital spending on processing and fractionation capacity for OVM, and unlock further synergies through combined operatorship of the systems,” Alan Armstrong, Williams’ president and chief executive officer, said.

The CPPIB could not be reached for comment.

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Tags: Canada Pension Plan Investment Board, Infrastructure, Natural Gas, William Cos.

Corporate America is looking at a rough patch ahead as earnings forecasts dip. But a bigger concern is the debt load that US companies carry. And the ongoing trend toward credit downgrades is not an inspiring signal.

So far in 2019, there have been 94 downgrades as opposed to 75 upgrades, for a ratio of 0.77, Moody’s data indicate. That ratio, wrote Mark Holman, CEO of TwentyFour Asset Management, a unit of Vontobel Asset Management, in a report, “is not an alarming figure, but it is becoming a trend.” Last year’s fourth quarter had a lot of downgrades and a 0.79 ratio.

At this stage, interest rate coverage remains solid. For US nonfinancial companies, earnings before interest and taxes cover almost four times interest expenses, a Federal Reserve study shows. Nevertheless, the level of corporate debt is daunting, totaling more than 70% of gross domestic product, higher than in 2007, right before the Great Recession.

A large amount of corporate issues now are rated as junk or near-junk. Consider coal miner Cloud Peak Energy, which Moody’s last month downgraded to Ca from Caa1. Both ratings are below investment grade, with the new one worse. Cloud Peak specializes in unearthing coal for the electric power industry. It figured that its mines in Wyoming and Montana would be a constant source of manna.

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The trouble is that public utilities are increasingly converting to clean natural gas. This has left Cloud Peak with a diminished customer base. A decade ago, coal made up half the fuel for power plants, and that has been cut to 25%.

Meanwhile, Bank of America continues its comeback from a near-demise due to the financial crisis. The banking giant was weighed down by its purchase of Countrywide, a large provider of sub-prime mortgages, which defaulted epically in the finance meltdown. Moody’s upgraded BofA to A2 from A3. Those ratings are upper-middle grade.

Which just goes to show that credit rating redemption is possible.