A planned divestiture of a $2 billion stake in Dominion Energy Inc.'s Cove Point LNG terminal is a significant step toward drawing down Dominion's relatively high parent-level debt, analysts said.
The deal announced Oct. 21 calls for Dominion to sell a 25% noncontrolling equity stake in its Cove Point LNG export and import facility in Maryland to Brookfield Asset Management Inc. affiliate Brookfield Super-Core Infrastructure Partners LP. The agreement represented an implied enterprise value of $8.22 billion, excluding working capital, Dominion said in a news release.
"Management said the proceeds will reduce the equity financing required for regulated utility investments/renewables, so in theory this keeps equity investors happy while removing the overhang of a larger equity offering," CreditSights analysts said in an Oct. 21 note. They viewed the deal as positive.
The deal did not appear to affect Dominion's stock price, with share prices relatively flat in afternoon trading Oct. 21 and closing at $82.42, an increase of less than 1%.
Dominion said the transaction is expected to close by the end of the year. The company described it as part of an effort to "establish a permanent capital structure for Cove Point."
"The agreement highlights the compelling intrinsic value of Cove Point and allows us to efficiently redeploy capital toward our robust regulated growth capital programs," Thomas Farrell II, Dominion's chairman, president and CEO, said in a statement.
The company completed the $4.1 billion project to add the export function to the Cove Point LNG receiving terminal in 2018. It shipped the first LNG cargo from the facility in March of that year before entering commercial service a month later.
The sale of the equity stake to Brookfield followed other recent steps by Dominion to reduce its holding company debt and boost its near-term credit profile. The electricity and natural gas provider's holding company debt stood at about 31% Dominion's debt as of the second quarter, CreditSights said. Previous steps by Dominion included securing a $3 billion nonamortizing term loan for Cove Point in September 2018 and selling $2.5 billion in assets in 2018, which was the combined total of the company's divestment in Blue Racer Midstream LLC and its unloading of ownership in three merchant generation facilities.
But the latest deal also comes at a time when Dominion continues to face the potential for the cancellation of its costly Atlantic Coast gas pipeline project, which the analysts cautioned could hit Dominion's balance sheet if it happens. Project costs have been high, and the pipeline has faced intense opposition from environmental groups, with challenges during reviews by government agencies and in the courts.
If the pipeline project were canceled, Dominion would be on the hook for its 48% share of a $1.7 billion construction loan for the 600-mile, 1.5-Bcf/d pipeline project, which spans West Virginia, Virginia and North Carolina, CreditSights said. Analysts said that works out to about $820 million.
The pipeline developer saw a positive development earlier this month when the U.S. Supreme Court agreed to hear a case over whether an appeals court was right to block authorizations that would allow the pipeline to cross a national forest and underneath the Appalachian Trail. The Supreme Court is expected to hear the case early in 2020 and issue a ruling by July 2020.