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19 Mar 2010
Over $2 billion of debt affected
New York, March 19, 2010 -- Moody's Investors Service changed Atmos Energy Corporation's (Atmos) rating
outlook to positive from stable and affirmed its long-term ratings
(Baa2 senior unsecured). The rating agency cited sustained good
financial results as a result of an ongoing round of rate increases and
an improving business risk outlook with the announcement that Atmos will
make no further investments in its nascent midstream business.
"A one-notch upgrade could be considered over the next twelve to
eighteen months, if the company obtains the level of rate relief
that it expects and maintains sufficient liquidity capacity in renewing
the credit facilities that expire this year," said Moody's Vice
President Mihoko Manabe.
In 2009, Atmos was approved $54 million in annual rate increases,
92% of which were from annual rate filings, capital investment
recovery mechanisms, and surcharges. The company's
regulatory activity continues apace with about $20 million of rate
relief granted so far this year, $68 million additional on
file, and $16 million more planned to be filed by its fiscal
year ending September 2010. Moody's notes that much of this
rate activity involves regular rate adjustments, outside of base
rate cases, for small amounts spread over twelve jurisdictions,
and that this regulatory strategy increases the certainty of obtaining
some rate relief while reducing exposure to any one adverse rate decision.
According to the rating agency, the company has also been successful
in obtaining rate design changes that mitigate earnings volatility from
weather, lower consumption, and bad debt.
A series of rate increases has contributed to a steady improvement in
Atmos's credit metrics over the past few years. After Moody's
standard adjustments, fiscal 2009 cash flow pre-working capital-to-debt
was 20%. Cash flow pre-working capital plus interest-to-interest
was 4.2 times. These credit metrics map to a high-Baa
range according to Moody's utilities rating framework, and
they are strong relative to similarly-rated gas and electric transmission
and distribution companies.
Over the past few years, however, one factor that restrained
Moody's ratings for Atmos has been the company's interest
in diversifying into midstream activities, such as gas storage and
gathering. Atmos as an institution has little operating record
in that line of business, which is significantly riskier than its
core regulated gas distribution business. After some minor projects,
the company has been developing the Fort Necessity salt dome storage.
Its investment to-date is modest at around $20 million,
but if the company were to proceed alone, Fort Necessity would be
by far its costliest and longest midstream project. Moody's
views favorably the company's announcement that it expects soon
to exit this investment by either a joint venture or an outright sale.
The rating agency would consider the successful disposition of the midstream
business as a credit-positive to Atmos.
Moody's will also be monitoring Atmos's alternate liquidity
resources. More than half of its committed capacity under its four
credit lines comes due this calendar year, notably the $200
million parent company facility in October and the $450 million
facility at the marketing subsidiary in December. The positive
outlook and any further upward movement in ratings would be contingent
on the company obtaining sufficient capacity on reasonable terms and reducing
its reliance on short-term lines.
The last rating action with respect to Atmos was on May 18, 2009
when its ratings were upgraded to Baa2 senior unsecured from Baa3.
The principal methodology used in reviewing Atmos was Moody's Regulated
Electric and Gas Utilities rating methodology, published in August
2009. This Rating Methodology is available on www.moodys.com
in the Rating Methodologies sub-directory under the Research and
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
..Issuer: Atmos Energy Corporation
....Outlook, Changed To Positive From
Headquartered in Dallas, Texas, Atmos Energy Corporation engages
in the distribution, transmission, and marketing of natural
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service
Moody's changes Atmos Energy's outlook to positive
William L. Hess
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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