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Keystone still in doubt despite Trump approval

TransCanada, developer of the North American pipeline, already has a high amount of leverage and faces political roadblocks to build the project, according to Moody’s.

TransCanada Corporation received a negative review from Moody’s this week for its renewed push to develop the $8 billion Keystone XL Pipeline, due to heavy leverage and persistent concerns about whether the project will be built.

While a credit-negative rating is typical for large projects, like Keystone, that do not generate cashflow until completed, Moody’s vice-president and senior credit officer Gavin MacFarlane said the pipeline’s history was a factor as well.

TransCanada first proposed the 1,179-mile pipeline in 2008 to transport oil drilled in Canada to refineries along the US gulf coast. Keystone was continually delayed by former US President Barack Obama due to environmental concerns until he officially struck it down in 2015 as his administration was gearing up to the COP21 climate conference.

But the project was revived after President Donald Trump, who favours the fossil fuel industry, won the US election last November. Trump signed an executive action last week directing the US State Department and other agencies to make a decision on the project 60 days after receiving a final application from the pipeline’s developer, TransCanada.

Two days later, the North American energy company based in Alberta submitted its paperwork.

However, hurdles still remain. MacFarlane wrote that TransCanada’s credit-negative rating was underpinned by the “incremental strain” developing Keystone would place on the company’s “already weak financial metrics, as well as the execution risks associated with the construction”.

He said TransCanada already employs a high amount of leverage and would not see cashflow from Keystone for years.

“You’re putting incremental pressure on a balance sheet that’s already fairly strained for the current rating level, and that’s what we’re really pointing to,” MacFarlane told Infrastructure Investor. “But I don’t think they would have any trouble securing financing to move that pipeline forward. It’s just a question of how that effects credit quality as they would move forward with the project.”