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07 Dec 2010
Approximately $2 billion of AGL debt affected
New York, December 07, 2010 -- Moody's Investors Service affirmed with stable outlooks the ratings
on the debt obligations of AGL Resources Inc. (AGLR, its
senior unsecured shelf at (P)Baa1), its guaranteed finance subsidiary
AGL Capital Corporation (AGL Capital, its senior unsecured rating
at Baa1), its operating subsidiaries Atlanta Gas Light Company (AGLC,
its senior unsecured debt at A3), and Pivotal Utility Holdings (PUHI,
its unenhanced senior unsecured rating at A3).
These rating actions follow AGLR's announcement of its agreement
to acquire all of the outstanding stock of Nicor Inc. (Nicor,
Prime-2 commercial paper rating) in a part stock, part cash
transaction. Nicor is the parent company of Northern Illinois Gas
Company (NI-Gas, A2 issuer rating), a regulated gas
The definitive merger agreement puts the enterprise value of the acquisition
at roughly $3 billion. The expected $1 billion cash
portion of the transaction will be bridge financed with a $1.25
billion facility, which will be taken out with permanent debt financing
prior to closing. The merger is anticipated to close in the second
half of 2011 subject to customary approvals, including a majority
vote by both sets of shareholders, the approval of the Illinois
Commerce Commission (ICC), and clearance under the Hart-Scott-Rodino
"The affirmation of AGLR's ratings is based on AGLR issuing
sufficient equity as part of the acquisition financing so that the expected
debt issuance will have minimal impact on the combined consolidated credit
metrics," says Moody's Vice President Mihoko Manabe.
Nicor's stronger credit metrics and stability as a mostly regulated
gas utility also help to sustain AGLR's current ratings.
Based on AGL and Nicor's reported financial statements as of the
last twelve months ended September 2010, Moody's estimates
that the transaction would increase AGL's consolidated long-term
debt in the 80% range, while raising its cash flow pre-working
capital (CF pre-w/c) by slightly over 100%.
The rating affirmations are based on AGLR financing this $3 billion
transaction with about 60% equity and obtaining low-cost
debt financing around the current favorable rates. The rating affirmations
are also subject to AGLR obtaining reasonable merger approval from the
ICC that would not contain any material restrictions with respect to NI-Gas'
ability to upstream dividends to its new parent while continuing to maintain
its credit metrics around its current strong levels. The stable
rating outlook anticipates that, on a combined basis, AGLR
will sustain consolidated CF pre-w/c plus interest-to-interest
coverages in the high 4 times range and debt-to-capitalization
under 50% after Moody's standard adjustments. Over
the next few years, Moody's does not foresee upward rating
pressure for AGLR pending the consummation of the transaction and the
integration of the two companies after the merger.
The ratings could be downgraded if on a combined basis, AGLR sustains
consolidated CF pre-wc plus interest-to-interest
coverages in the mid 4 times range and debt-to-capitalization
over 50% after Moody's standard adjustments.
Moody's most recent rating action on AGLR was on December 1,
2005, when the ratings of AGLR, AGL Capital, AGL Trust,
and AGLC were affirmed and PUHI's unenhanced rating was upgraded
to A3 from Baa1, and all of their outlooks were changed to stable
from negative. The principal methodology in rating AGLR was Moody's
Regulated Electric and Gas Utilities rating methodology, published
in August 2009. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found on Moody's
Headquartered in Atlanta, Georgia, AGL Resources Inc.
engages in the distribution, asset management, and marketing
of natural gas and gas storage operations.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service's information.
Moody's considers the quality of the information to be satisfactory.
The credit rating action was based on sufficient historical data.
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms AGL Resources at stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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