New York, June 17, 2015 -- Moody's Investors Service ("Moody's") affirmed
the ratings for NiSource, Inc. and its rated subsidiaries
in anticipation of the imminent completion of its corporate separation,
originally announced in September 2014. The spinoff of its natural
gas pipeline and midstream assets, scheduled for 1 July 2015,
entails NiSource splitting into two publicly traded companies: NiSource
Inc.: a holding company with a portfolio of fully regulated
electric and natural gas distribution utility subsidiaries: and
Columbia Pipeline Group (CPG, Baa2 senior unsecured): a pure
play natural gas pipeline, midstream and storage company.
Today's rating affirmation does not include CPG. Ratings
affirmed include the Baa2 senior unsecured rating and P-2 Commercial
Paper rating for NiSource Finance Corporation, the principal funding
vehicle for the NiSource family; the Baa2 rating for NiSource Capital
Market's Inc., the legacy funding vehicle for the NiSource
family, the Baa2 senior unsecured rating for Bay State Gas Company
(Bay State), which reflects the guarantee from NiSource, Inc.,
and the Baa1 senior unsecured rating for Northern Indiana Public Service
Company (NIPSCO). The (P) Ba1 preferred shelf for NiSource Inc.,
the ultimate parent company, was also affirmed. The rating
outlooks for all of NiSource's rated entities are stable.
"NiSource's Baa2 rating reflects the low business risk and
good diversity of its electric and natural gas distribution businesses"
said Lesley Ritter, Analyst. "All six utility subsidiaries
operate in supportive regulatory jurisdictions, where a $7.8
billion rate base will generate stable and predictable cash flows over
the next few years, thereby mitigating NiSource's high leverage".
RATINGS RATIONALE
The Baa2 rating for NiSource primarily reflects its rate-regulated,
low business risk utility assets. These businesses include six
local distribution companies (representing approximately 55% of
total consolidated rate base) and one combination vertically integrated
electric and gas distribution utility, Northern Indiana Public Service
Company (NIPSCO: Baa1 stable). The regulatory authorities
that oversee these utilities are supportive to long-term credit
quality because they provide an attractive suite of timely recovery mechanisms
for prudently incurred costs and investments and authorized equity returns
are at or above the national average. These utility operations
also benefit from numerous special rate riders and trackers that shield
approximately 65% of revenues from volumetric-related fluctuations.
NiSource also benefits from good geographic diversity and size,
with a footprint spanning seven states across the Northeast quadrant of
the US, and a low business risk profile with natural gas distribution
companies representing approximately 65% of consolidated operating
income. Combined, the supportiveness of NiSource's
regulatory jurisdictions and its good geographic diversity, are
viewed as a material credit positive.
The rating is constrained by NiSource's weak financial profile,
primarily relating to its significant leverage. Furthermore,
NiSource's extensive capital investment projects will continue to
pressure its debt coverage and capitalization ratios over the coming years.
As a result, we expect NiSource will apply a conservative financing
approach to its capital investments, including a balanced mix of
debt and equity.
"NiSource's high debt level appears unlikely to change for
the foreseeable future, and will pressure consolidated metrics,
including a ratio of cash flow to debt in the 12-13% range
over the next few years. Although the financial profile reflects
only a limited amount of financial flexibility, we do not see the
credit profile deteriorating." Ritter added.
NiSource's stable outlook reflects our expectation that its financial
profile will decline modestly due to its corporate separation, but
only temporarily. A debt to capitalization ratio of approximately
50% is expected as well as a decline in its cash flow to debt to
the 12-13% range before slowly rising closer to the mid-teens
range towards the end of the decade. The stable outlook reflects
and anticipates the completion of the corporate separation in line with
the company's outlined timeline and terms, and incorporates
a view that NiSource's regulated utility capital expenditure plans
will be financed in a balanced manner. The outlook also takes into
account the credit supportiveness of NiSource's regulatory environments,
the low business risk associated with its LDC operations, and the
scale and scope of its footprint, that together mitigate metrics
that are weak for the rating.
NIPSCO's Baa1 rating reflects the company's healthy standalone
credit metrics and favorable regulatory environment. The rating
is constrained by its geographic concentration in northern Indiana and
a mature and highly industrialized service area, leaving it particularly
exposed to macroeconomic fluctuations. The one-notch difference
in the rating of NIPSCO and NiSource takes into account the implicit burden
of substantial debt at the parent level and the fairly unrestricted movement
of cash among its affiliates in a centralized money pool.
NIPSCO's stable outlook reflects the parent's stable outlook,
the credit supportiveness of its regulatory environment, and the
expectation that the company will continue to recover its large capital
investment program on a timely basis. The outlook also anticipates
a that any funding shortfall will be prudently funded.
What Could Change the Rating -- Up
An upgrade at NiSource could be considered if there was further improvement
in the utility's regulatory environment or if the cash flow to debt
ratio rises to the high teens and interest coverage exceeds 4.0x
on a sustained basis.
NIPSCO's rating could be raised if there is an improvement in the
regulatory environment that led to meaningfully greater predictability,
timeliness and/or sufficiency of rates such that financial metrics would
be expected to improve, specifically if CFO pre-WC to debt
rises above 24% and interest coverage to over 5.0x on a
sustained basis. An upgrade at NiSource could also place upward
rating pressure on NIPSCO.
What Could Change the Rating - Down
The rating could be downgraded if there is a decline in credit supportiveness
of NiSource's regulatory environments, an adverse change in
the company's business mix such that its business risk profile deteriorates,
or if debt coverage and interest coverage fall below 12% and 3.0x,
on a sustained basis.
NIPSCO's rating could be downgraded if it experiences a deterioration
in its relationship with its primary regulators or if its CFO pre-WC
to debt metrics fell to the mid-teens on a sustained basis.
NIPSCO's rating could come under downward pressure if its parent
adopted an aggressive corporate finance strategy where it would place
additional reliance on dividends from its regulated subsidiary to service
the parent debt. Finally, a downgrade at NiSource could also
place downward rating pressure on NIPSCO.
Any change in Bay State's rating or outlook is linked to a change
in its parent rating or outlook.
Outlook Actions:
..Issuer: Bay State Gas Company
....Outlook, Remains Stable
..Issuer: NiSource Capital Markets, Inc.
....Outlook, Remains Stable
..Issuer: NiSource Finance Corporation
....Outlook, Remains Stable
..Issuer: NiSource Inc.
....Outlook, Remains Stable
..Issuer: Northern Indiana Public Service Company
....Outlook, Remains Stable
Affirmations:
..Issuer: Bay State Gas Company
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Baa2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
..Issuer: Jasper (County of) IN - Supported
by Northern Indiana Public Service Company
....Senior Secured Revenue Bonds, Affirmed
A1/VMIG 1
....Senior Unsecured Revenue Bonds,
Affirmed Baa1
..Issuer: NiSource Capital Markets, Inc.
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
..Issuer: NiSource Finance Corporation
.... Issuer Rating, Affirmed Baa2
....Senior Unsecured Bank Credit Facility,
Affirmed Baa2
....Backed Senior Unsecured Commercial Paper,
Affirmed P-2
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
....Backed Senior Unsecured Shelf, Affirmed
(P)Baa2
..Issuer: NiSource Inc.
....Preferred Shelf, Affirmed (P)Ba1
....Preferred Shelf - PS2, Affirmed
(P)Ba1
..Issuer: Northern Indiana Public Service Company
.... Issuer Rating, Affirmed Baa1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Baa1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in December 2013. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The following information supplements Disclosure 10 ("Information
Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J)
of SEC Rule 17g-7") in the regulatory disclosures made at
the ratings tab on the issuer/entity page on www.moodys.com
for each credit rating as indicated:
Moody's was not paid for services other than determining a credit
rating in the most recently ended fiscal year by the person(s) that paid
Moody's to determine this credit rating.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Lesley Ritter
Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms the ratings for NiSource Inc. and its subsidiaries; rating outlooks remain stable
