OREANDA-NEWS. S&P Global Ratings today said it assigned its 'BBB' issue-level rating to TransCanada Trust's proposed unsecured subordinated trust notes series 2016-A due Aug. 15, 2076. The subordinated notes will finance the acquisition of the 2016 subordinated notes from TransCanada PipeLines Ltd. (TCPL). TCPL, in turn, intends to use the proceeds from the 2016 issue for general corporate purposes and to reduce short-term debt for itself and its affiliates.

TCPL will guarantee the trust's notes.

We classify the 2016-A notes as having intermediate equity content because of their subordination, permanence, and optional deferability. Consequently, in our calculation of TransCanada Corp.'s consolidated credit ratios, we will treat 50% of the principal outstanding and accrued interest under the hybrids as equity rather than debt. We will also treat 50% of the related payments on these securities as equivalent to a common dividend. Both treatments are in line with our hybrid capital criteria.

While the subordinated loans are due in 60 years, interest on the notes will increase by 25 basis points in 2026 (year 10) and 75 in 2046. We consider the cumulative 100 basis points as a material step-up, which provides an incentive for the trust to redeem the instruments on the call date.

Consequently, we will likely no longer recognize the securities as having intermediate equity content after the first call date, because the remaining period until effective maturity would be less than 20 years. Critical to our assessment of permanence is our belief in management's commitment to maintain or replace these securities, as evidenced by its stated intention to replace if redeemed.