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03 Aug 2005
MOODY'S DOWNGRADES THE RATINGS OF MARITIMES & NORTHEAST PIPELINE AND MARITIMES & NORTHEAST PIPELINE LIMITED PARTNERSHIP (BOTH TO A2 FROM A1, SR. SEC.); RATING OUTLOOK IS STABLE
Approximately U.S. $240 Million and CDN $260 Million of Debt Securities Affected
New York, August 03, 2005 -- Moody's Investors Service downgraded the rating of the U.S.
$240 million senior secured bonds of Maritimes & Northeast
Pipeline L.L.C. ("Maritimes U.S.")
and the rating of the CDN $260 million senior secured notes of
Maritimes & Northeast Pipeline Limited Partnership ("Maritimes
Canada"), in both cases to A2 from A1. This action
concludes the review for possible downgrade. The rating outlook
for both companies is stable.
The rating action reflects the following factors:
1) Several consecutive years of significant downward revisions in the
reserve estimates for the Sable Offshore Energy Project (SOEI);
2) Reduced production by SOEI producers, resulting in lower interruptible
transportation revenues and coverage ratios for Maritimes U.S.,
which we do not expect to be adequately offset by prospects for higher
rates once the pending Federal Energy Regulatory Commission (FERC) rate
case is settled later this year; and
3) Uncertainty about whether regulators will provide the necessary support
for additional Sable offshore development or development of other less
conventional supply sources.
The SOEI producers are now estimating that Sable field reserves might
be nearly 50% less than the original estimate of 3.7 trillion
cubic feet that was expected when the pipelines began commercial operation
in 1999. As a result, we believe the margin against possible
reserve depletion prior to the bonds' 2019 maturity date has been
reduced. In our view, these circumstances increase the possibility
that Maritimes U.S. and Maritimes Canada might be required
under a borrowing base concept to fund an escrow account to support repayment
of the bonds before reserve depletion. Although bondholders hold
a measure of additional protection under the borrowing base concept,
which relies upon an 8-year "look-forward" deliverability
report to determine whether sufficient reserves exist to meet pipeline
throughput capacities, we do not believe that the increased possibility
of relying on this mechanism is consistent with the previous rating level.
The A2 rating and the stable rating outlook for both companies is supported
by the strong credit quality of the current group of shippers under long
term contracts that provide substantial debt service coverage from capacity
payments irrespective of throughput volumes; the expectation that
the Maritimes pipelines will maintain a competitive cost position for
the delivery of natural gas to end use markets in Eastern Canada and the
Northeast U.S.; and structural protections in the various
project agreements that include credit requirements for replacement shippers.
The long-term issue of adequate natural gas throughput volumes
may be resolved by construction of liquified natural gas (LNG) terminals
that would utilize the pipelines to reach markets along the current pipeline
route. Maritimes U.S. and Maritimes Canada received
a favorable response to the recent open season for new natural gas transportation
capacity that would involve sourcing volumes of gas through imports of
LNG and other supply sources. Subsequent to the favorable response,
the companies executed precedent transportation agreements with Anadarko
Petroleum (Baa1; stable) and Repsol YPF (Baa1; stable).
The potential volumes relating to the Anadarko and Repsol YPF agreements
would amount to 813,000 mmbtu/day and 750,000 mmbtu/day,
Although the precedent transportation agreements and others that the companies
may execute in the future could mitigate some of our concerns about the
adequacy of SOEI reserves over the intermediate to long term, the
expansion plans are subject to various regulatory approvals and other
precedent conditions, and it is possible that competing proposals
could materialize to serve the same end markets. Since Moody's
regards the expansion plan as being uncertain and subject to revision
at this early stage, the possible expansion is not currently a significant
factor in the rating.
Maritimes & Northeast Pipeline L.L.C. and Maritimes
& Northeast Pipeline Limited Partnership are the operating companies
comprising the Maritimes & Northeast Pipeline project consisting of
662 miles (353 in Canada and 309 in the United States) of natural gas
pipeline running between Goldboro, Nova Scotia and Dracut,
Massachusetts. Maritimes and Northeast Pipeline is headquartered
in Halifax, Nova Scotia, Canada.
Corporate Finance Group
Moody's Investors Service
Kevin G. Rose
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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