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Rating Action:

MOODY'S ASSIGNS Ba3 SENIOR SECURED CREDIT RATING TO NISKA GAS STORAGE AND Ba3 CORPORATE FAMILY RATING

28 Apr 2006
MOODY'S ASSIGNS Ba3 SENIOR SECURED CREDIT RATING TO NISKA GAS STORAGE AND Ba3 CORPORATE FAMILY RATING

First Time Rating - Approximately $1.05 Billion of Credit Facilities Affected

New York, April 28, 2006 -- Moody's Investors Service assigned a Ba3 rating to Niska Gas Storage's (which is comprised of Niska GS Holdings I, L.P., Niska GS Holdings II, L.P., and subsidiaries) $1.05 billion senior secured credit facilities and a Ba3 corporate family rating. The ratings outlook is stable.

Through the newly formed entities comprising Niska Gas Storage (Niska), Carlyle/Riverstone Global Energy and Power Funds II and III (Riverstone) entered into agreements to purchase substantially all of the natural gas storage assets of the EnCana Corporation (EnCana) for approximately $1.5 billion. The credit facilities are comprised of a $700 million seven-year Term Loan B facility; a $250 million five-year revolving credit facility; and a $100 million five-year asset sale term loan facility that is expected to be paid down with proceeds from sale of non-cycling working gas inventory by the end of the storage cycles in 2007 and 2008. Along with approximately $750 million of sponsor equity, the $1.05 billion credit facilities will be used to fund the acquisition along with related fees and expenses.

The assigned ratings and rating rationale are comparable to other midstream businesses rated in the speculative grade range by Moody's. In support of the ratings, Moody's observes large first-in cash equity; a long established business, operating at key strategic regional hubs in the North American natural gas logistical infrastructure; an underlying contracted core revenue and earnings base (the credit facility requires 70% of capacity be committed on term contracts); the investment grade ratings of its contracted customer base; the company's position as the largest independent natural gas storage operator in North America; a well-structured collateral package; and a free cash flow sweep of 50% to 75% at certain leverage tests. ; to provide a stronger credit support and lower business risk profile for the Ba3 ratings than B1 rated midstream deals.

The company's strategically positioned depleted gas reservoir assets have proven commercial value, recently received very substantial additional capital investment from Encana, and will have low cushion gas requirements after additional investments made by Niska. The AECO Hub assets in Alberta, Canada are situated in one of the largest and most liquid natural gas markets in North America. The company's U.S. assets, Wild Goose and Salt Plains are amongst the largest independent storage and highest deliverability operations in their respective regional markets, as well. Niska will also obtain the rights to develop a high multiple cycle salt dome facility in Louisiana, though, development of the project will require substantial capital outlays, which the company may fund with financing independent of the rated facilities.

Niska's Ba3 ratings are restrained by considerable initial leverage; highly volatile working capital requirements and possible commodity price risk related to the company's optimization business; the limited ability of depleted reservoir storage systems (compared to salt dome storage systems) to augment earnings by meet sharp surges in withdrawal demand and less frequent ability (versus salt dome storage) of depleted reservoir storage to turnover its volumes during a given year; and the on-going requirements to re-negotiate the current short-term storage contracts at prevailing market rates.

Through its Canadian subsidiaries, the company will acquire approximately 125 Bcf of storage capacity at the AECO hub in Alberta, Canada. The U.S. subsidiaries will control approximately 24 Bcf of storage at Wild Goose, 15 Bcf of capacity at the Salt Plains facility in Oklahoma; along with the rights to possibly develop a new facility with 27 Bcf of storage capacity at the Starks facility in Louisiana; and 8.5 Bcf of capacity on the Natural Gas Pipeline System in the mid-continent market region.

The increase of the effective capacity at the company's facilities without a material increase in leverage; the development of the Starks facility with a clear funding strategy supported with an equal portion of equity; a reduction in debt through the sale of NCWG with proceeds paying off the Asset Term Loan; and a continued supportive commodity price environment, may cause the ratings to go up.

A materially debt funded acquisition; a shift in management strategy away from the durable contract storage business to more speculative marketing activities; development of the Starks facility with little or no equity; or a substantial fall in natural gas storage prices, would all contribute to pressuring the ratings downward.

New York
John Diaz
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andrew Oram
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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