How TC Energy, the former darling of dividend investors, fell into a financial hole that forced a pipeline sale

to a private equity firm, and the US$3.9-billion sale price amounts to a far lower multiple to earnings than what TC originally paid.

Most of this pressure comes from TC Energy’s expansion plans. The company has a sector-leading capital investment program that will see it spend $30-billion between 2023 and 2026, according to Moody’s, and is already wrestling with major cost overruns at its Coastal GasLink pipeline, which will transport Canadian natural gas to a, B.C. Originally projected to cost $6.2-billion to build, the price tag for the pipeline has since soared to $14.5-billion.

Shale gas, meanwhile, changed TC Energy’s traditional playbook. Historically the company made its name shipping gas from deposits in Western Canada to eastern markets via its cross-Canada Mainline system. But the development of the Marcellus formation in the U.S. Northeast, in and around Pennsylvania, changed all that. By 2016, shipper contracts that sent gas east on the TransCanada system had dropped by half.

But so much has changed in the past 18 months. After natural gas prices plummeted, the number of drilling rigs in the U.S. started to shrink, which means prospects for more transport volumes on TC’s pipelines are disappearing. And with growth falling away, investors are putting more focus on the company’s balance sheet – especially after the price of Coastal GasLink increased again.

However, the sale price of the Columbia stake has analysts concerned. The price tag amounts to 10.5 times Columbia’s EBITDA, while many analysts expected asset sales to be worth 11 to 12 times. Columbia is also a “marquee asset,” according to Bank of Nova Scotia analyst Robert Hope, which means it should have received one of the best multiples currently available.

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