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08 Jul 2003
MOODY'S CONFIRMS THE DEBT RATINGS OF NISOURCE, INC. AND ITS SUBSIDIARIES (Baa3 SENIOR UNSECURED)
Over $7 Billion of Securities Affected
New York, July 08, 2003 -- Moody's Investors Service confirmed the ratings of NiSource,
Inc. (NI) and its subsidiaries, concluding a review for possible
downgrade begun on May 13, 2003. The rating outlook is stable.
The rating confirmation follows NI's announcements of the sales
of Columbia Energy Resources (CER, its E&P subsidiary) and Primary
Energy (its co-generation business) -- NI's two remaining
non-regulated businesses of significant size -- and
a 20% decrease in its common dividend rate. These actions
result in a relatively neutral financial impact but are beneficial to
NI's credit standing by reducing its direct debt service obligations,
conserving some cash to be available for debt reduction, working
capital, or capital expenditure needs, and reducing its overall
business risk. They also indicate management's willingness
to take measures to ensure at least a minimal investment grade profile
The stable rating outlook assumes that: 1) the company will close
the CER and Primary sales in a timely manner and under terms currently
contemplated; 2) contingent obligations that NI retains in the CER
and Primary sales will not materialize; 3) the company will refinance
the $750 million of the long-term debt maturing in November;
and 4) NI will not raise dividends to levels that will be detrimental
to its credit. A negative change in NI's rating or outlook
would result if these assumptions do not hold. NI's ratings
reflect its stable but modest debt protection measures, and a sustained
improvement in those measures would be a cause for positive rating action
over the medium term.
Moody's notes that in each of the sales of CER and Primary,
NI will remain guarantor of CER and Primary's obligations that could
result in a liability for NI in event of a default by CER or Primary.
Guaranties on certain of Primary's and CER's obligations also
contain rating triggers that cause either letters of credit to be posted
or interest costs to go up (rating trigger-related collateral calls
of about $255 million by the company's estimate).
Thus, while CER and Primary's debt will be eliminated from
NI's balance sheet, the company will be contingently liable
for them for the remaining terms of those obligations. This risk
is mitigated by the buyers' indemnities that backstop NI's
guarantee obligations, should they materialize. Both purchasers
are entities newly formed by financial investors for the purpose of these
acquisitions and have yet to demonstrate a track record in managing these
The Impacts of the Asset Sales and the Dividend Cut
Both the CER and Primary sales result in the purchaser assuming the direct
obligations related to those businesses. These sales will benefit
NI by eliminating about $360 million of direct obligations relating
to Primary and CER, reducing short-term debt from the cash
proceeds (roughly $320 million) and eliminating the related capital
expenditures (about $110 million) and exposure to commodity price
and other business risks related to those assets.
The CER sale will net after-tax cash proceeds of $220 million
and will eliminate long-term gas prepay contracts with an outstanding
balance of about $240 million. The CER sale will eliminate
about $100 million of capital expenditures and roughly the same
amount of EBITDA.
The Primary sale will net cash proceeds of about $100 million and
remove a $120 million capital lease from its books. NI will
retain guarantees related to this capital lease plus $64 million
of operating leases, which will be footnoted in its financial statements
post-sale. NI will keep Whiting, the largest of Primary's
projects. Whiting accounts for roughly half of Primary's
assets, capacity, and debt. It also accounts for the
majority of Primary's losses, with expected pre-tax
losses of $28 million in 2003.
Together, these sales will result in a slight decline in NI's
free cash flow, but the cash saved in the dividend cut (roughly
$60 million a year) will offset it. These transactions will
likewise have a minor impact on debt-to-capital, since
the reduction in debt (almost $700 million including debt assumed
by the buyers) is matched by a write-down in equity of roughly
half that amount (mostly related to the write-down for CER).
Pro forma for the two asset sales and the dividend cut, adjusted
debt-to-capital (including total on-balance sheet
debt plus deferred revenues related to the prepays plus operating leases
x 8) will fall slightly from 62% as of 3/31/03 to 61% pro
forma. Pro forma, retained cash flow-to-adjusted
debt will improve from 11% for the last twelve months ended 3/31/03
With the decrease in low-return assets (roughly a third of NI's
assets are investments in E&P and in Primary), NI's investments
in its remaining business segments will more closely match their EBIT
contributions: roughly one-third each from gas distribution,
power, and gas transmission. Its future results should have
a high degree of predictability, as these businesses are all regulated.
The following ratings have been confirmed with a stable outlook:
NiSource, Inc. -- (P)Ba2 preferred shelf;
Bay State Gas Company -- Baa2 senior unsecured medium-term
The Columbia Energy Group -- Baa2 senior unsecured notes;
NiSource Capital Markets, Inc. -- Baa3 senior unsecured
Northern Indiana Public Service Company -- Baa2 senior unsecured
debt and long-term issuer ratings, Baa3 preferred stock,
Baa1 senior secured pollution control revenue bonds, Baa2 senior
unsecured pollution control revenue bonds, VMIG-2 short-term
NiSource Finance Corporation -- Baa3 long-term issuer rating,
Baa3 senior unsecured debt, (P)Baa3 senior unsecured shelf,
and Prime-3 commercial paper.
NiSource, Inc., headquartered in Merrillville,
Indiana, is a diversified energy distribution company with natural
gas and electric operations.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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