A TCPL sub trust is proposing to issue 60-year automatically convertible notes which will qualify as equity for rating-agency purposes
An Ontario units trust controlled by TransCanada PipeLines Limited, which has already issued U.S.$1.95B in notes, is proposing to issue a further U.S.$1.2B, with the proceeds to be on-lent under unsecured subordinated notes to TCPL at roughly a 25 b.p. spread. The targeted result is that this debt will qualify for Basket ''C'' equity treatment by Moody's, and for Intermediate Equity Credit treatment by S&P. Somewhat equity-like features include the term of around 60 years, automatic conversion into preferred shares (with the same redemption amount) on specified insolvency events and the right of TCPL to satisfy interest payments in preferred shares.
The Trust notes and Sub notes of TCPL nonetheless clearly are debt for ITA purposes; but the U.S. tax disclosure states that there is no certainty that the IRS or a court will agree with TCPL’s position that they are debt. TCPL has the right to cause the Trust notes to be redeemed in the event that a “Tax Event” occurs, which in approximate terms refers to an opinion of independent counsel that any change in tax law (including its official administrative interpretation) would limit an interest deduction for U.S. tax purposes so as to result in the Trust or TCPL/TCC being subject to significant additional taxes or the interest being subject to significant withholding.
Neal Armstrong. Summary of Short Form Supplemented PREP Prospectus of TransCanada Trust under Offerings – Trust Notes.