• Assets valued at $7.1 billion, including Mexico pipeline stake
  • Analyst says power plants may get interest from Blackstone

TransCanada Corp. is working with JPMorgan Chase & Co. to find buyers for more than $7 billion in assets to help finance its acquisition of Columbia Pipeline Group Inc., people with knowledge of the matter said.

The people asked not to be identified because the information is private. Assets for sale include a portfolio of U.S. Northeast merchant power plants and a minority stake in TransCanada’s Mexican natural gas pipeline business. The value of the combined assets is estimated to be $7.1 billion, according to Moody’s Investors Service.

The merchant power assets for sale rely on wholesale electricity markets, rather than contracts, for their profits. Among facilities up for sale are the Ironwood natural gas power plant in Pennsylvania, Ravenswood gas- and oil-fired generation plant in New York, hydroelectric power assets in New England, the Kibby wind power operation in Maine and Ocean State Power gas generation facilities in Rhode Island.

The power plants could attract interest from private equity investors such as Blackstone Group LP, D.E. Shaw & Co., Macquarie Group Ltd. and Riverstone Holdings LLC, said Travis Miller, an analyst at Morningstar Inc. in Chicago. Strategic peers including Calpine Corp. and NRG Energy Inc. also may take a look, he said.

Power Portfolio

Selling TransCanada’s U.S. Northeast power portfolio is the best option to generate the funds needed to acquire Columbia Pipeline, Grady Semmens, a spokesman for TransCanada, said in an e-mailed response to questions about the sales process.

“This is a high-quality business that has served our shareholders well for many years,” Semmens said.

Representatives from JPMorgan, Riverstone, Calpine, Macquarie and D.E. Shaw declined to comment, while representatives from Blackstone and NRG didn’t immediately respond to requests for comment.

Private equity investors are better equipped to purchase the assets, Miller said, because publicly traded companies are generally short on capital to spend on merchant power that’s out of favor with their shareholders.

“The private equity space right now benefits from relatively low cost of capital and risk appetite, so that’s where we see the most likely buyers for merchant assets,” Miller said

While TransCanada paid $2.9 billion for Ravenswood in 2008, it would be difficult in the current environment to fetch a sale price that high, according to Miller. He said Ravenswood could be worth as much as double the $378 per kilowatt that Dynegy Inc. agreed to pay last month for U.S. power assets owned by Engie SA, implying a value of about $1.98 billion.

TransCanada, based in Calgary, has said that the proceeds from the combined asset sales will help it finance the $10.2 billion purchase of Columbia. TransCanada also is selling at least C$4.2 billion ($3.2 billion) in shares to help finance the deal.

TransCanada is the largest Canadian pipeline company by market value after Enbridge Inc.

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