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Announcement:

Moody's affirms Boardwalk Pipelines' stable outlook

07 Aug 2009

Approximately $2 billion of debt affected

New York, August 07, 2009 -- Moody's Investors Service affirmed the debt ratings of Boardwalk Pipelines, LP (Boardwalk, Baa2 senior unsecured) and its rated subsidiaries Gulf South Pipeline Company, LP and Texas Gas Transmission, LLC (both rated Baa1 senior unsecured) and their stable rating outlooks. The affirmation follows Boardwalk's recent second quarter results which included revenue losses from the remediation of some of its new pipelines, which may delay the full implementation of those projects and cause a shortfall in cash flow.

"This setback appears temporary and fixable," says Moody's vice president Mihoko Manabe. "Boardwalk's capital program should be substantially complete by early 2010, allowing its leverage metrics to recover toward its target levels."

Boardwalk Pipeline Partners, LP (BWP, unrated), Boardwalk's holding company, recently announced its second quarter results that were diminished by reduced revenues and additional expenditures related to remediating anomalies that were found in its recently laid expansion pipes. In accordance with orders from the Pipeline and Hazardous Materials Safety Administration (PHMSA) of the U.S. Department of Transportation, Boardwalk is operating the 42-inch expansion pipelines at pressures that are at the industry standard but less than the maximum levels on which its transportation agreements and financial plan were based.

The stable outlook is based on Boardwalk resolving its anomalies and obtaining PHMSA's authorization to operate as it planned in a timely manner. So far, Boardwalk has completed the remediation of its 42-inch expansion pipelines and is now working on remediating its 36-inch pipelines, a process that could last into early 2010. PHMSA has allowed the 42-inch pipelines to operate at standard pressure that is 72% of the Specified Minimum Yield Strength (SMYS). It is Moody's understanding that at the 72% operating pressure, the pipeline has the throughput that substantially meets its contractual obligations; however, the pressure is still below the 80% maximum level on which these projects were based. It is unclear when PHMSA might authorize increases to the projects' maximum levels.

Under 72% operating pressures, Boardwalk is receiving lower revenues under its expansion contracts, and this shortfall (according to the company estimates, about $48 million in annual revenues, which is about 6% of last twelve months' revenues) could grow over time until Boardwalk receives authorization to increase the SMYS to 80%. If for some reason this situation continues, the economics of these projects could be impaired and Boardwalk's ratings affected unless the company de-leverages its balance sheet to adjust to lower cash flow expectations.

After Moody's standard adjustments, Boardwalk's debt/EBITDA ratio for the last twelve months ended June 20, 2009 was at about 7 times. The company's current ratings and stable outlook are premised on this ratio falling to a sustainable 4 times range, once the current projects are brought on-line.

Moody's noted that Boardwalk's liquidity is tight, but the $350 million of the financing it needs to complete its projects does not appear insurmountable to raise in the current environment.

Moody's takes into account the support Boardwalk's credit quality and liquidity has received in the recent past from its ultimate parent Loews Corporation (A3 senior unsecured). Since the beginning of 2008, Loews has invested $1.4 billion of equity capital and $200 million of subordination loans to help Boardwalk finance its construction program during a particularly turbulent period in the capital markets. Its support has allowed Boardwalk to maintain roughly a 50% debt/50% equity mix in its financings over the past three years. Loews, which reported a cash balance of $2.4 billion as of June 30, 2009, has committed to invest an additional $150 million of equity and/or debt in Boardwalk if it is unable to tap the capital markets on reasonable terms.

The last rating action with respect to Boardwalk was on November 16, 2006 when Moody's rated Boardwalk's debt issue. Moody's last announcement on the company was on October 27, 2008 with a comment on its equity infusion.

The principal methodology used in rating Boardwalk is the September 2007 Midstream Energy Companies and Partnerships rating methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, under the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating the Boardwalk companies can also be found in the Credit Policy & Methodologies directory.

Headquartered in Houston, Texas, Boardwalk Pipelines, LP is a wholly-owned subsidiary of Boardwalk Pipeline Partners, LP, a publicly-traded master limited partnership engaged in interstate natural gas transmission.

New York
Mihoko Manabe
VP - Senior Credit Officer
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Boardwalk Pipelines' stable outlook
No Related Data.
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