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Rating Action:

Moody's changes Niska's outlook to positive

04 Oct 2016

Approximately $219 million of rated debt affected

Toronto, October 04, 2016 -- Moody's Investors Service, ("Moody's") assigned Niska Gas Storage Ltd. (Niska) a Caa1 Corporate Family Rating (CFR) and a Caa1-PD Probability of Default Rating. Niska's Caa2 senior unsecured notes was affirmed. The rating outlook was changed to positive from negative.

Brookfield Infrastructure Fund II L.P. (Brookfield unrated) closed its acquisition of Niska Gas Storage Partners L.P. in July 2016, the parent of Niska. In September 2016, Brookfield deeply subordinated the $356 million of senior unsecured notes owned by it and its affiliates. Brookfield also subordinated $49 million owing to it and its affiliates under the terms of its short term credit agreement with Niska. Moody's views the new subordinated debt as equity thereby reducing Niska's total debt by $405 million.

All ratings for Niska Gas Storage Partners LLC are being withdrawn because the entity no longer exists following the closing of the acquisition.

"The change in outlook to positive reflects the significant decrease in debt levels and resulting improvement in leverage metrics", said Paresh Chari, Moody's AVP- Analyst. "The affirmation reflects the weak liquidity profile that exists until the near term revolver maturity is extended."

..Issuer: Niska Gas Storage Ltd.

Assignments:

.... Probability of Default Rating, Assigned Caa1-PD

.... Corporate Family Rating, Assigned Caa1

Affirmations:

....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Caa2 (LGD5)

Outlook Actions:

....Outlook, Changed To Positive From Negative

..Issuer: Niska Gas Storage Partners LLC

Withdrawals:

.... Probability of Default Rating, Withdrawn , previously rated Caa1-PD

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-4

.... Corporate Family Rating, Withdrawn , previously rated Caa1

Outlook Actions:

....Outlook, Changed To Rating Withdrawn From Negative

RATINGS RATIONALE

Niska's Caa1 Corporate Family Rating (CFR) is driven by the near term maturity of its revolving credit facility, which drives weak liquidity. The rating also factors in poor earnings visibility beyond one year and high exposure to its volatile natural gas price optimization business. The rating favorably recognizes the significantly improved leverage metrics and the strategic importance of its natural gas storage assets.

Moody's expects Niska's liquidity to be weak over the next twelve months. At June 30, 2016, Niska had minimal cash and $121 million available, after $18 million in letters of credit, under its borrowing base revolvers, which mature on December 31, 2016. The revolvers availability provides near term liquidity, however, the facilities mature within the next 12 months. The revolver is available in equal amounts to AECO Gas Storage Partnership and Niska Gas Storage US, LLC, subject to the periodic borrowing base calculation. Moody's expects positive free cash flow over the next twelve months. Niska's fixed charge coverage ratio covenant is currently below 1.1x, which limits the ability to draw more than 85% of the revolver borrowing base. However, Niska's fixed charge coverage ratio will improve significantly on a pro-forma basis. The company has no major debt maturities until 2019. Niska has little in the way of non-core assets that could be sold.

In accordance with Moody's Loss Given Default methodology, the remaining $219 million senior unsecured notes are rated Caa2, one notch below the Caa1 CFR, because of the existence of the priority ranking senior secured revolving credit facilities. The $405 million unsecured subordinated intercompany loans are treated as equity due to their deeply subordinated nature.

The positive outlook reflects our expectation that the revolving credit facility will be extended to a term beyond 12 months and that leverage metrics will improve.

The rating could be upgraded if liquidity is adequate, debt to EBITDA was likely to remain below 4x and EBITDA to interest was likely to remain above 2.5x.

The rating could be downgraded if debt to EBITDA was likely to rise above 5x, EBITDA to interest fell below 1.5x or liquidity worsened.

Niska is a privately owned Calgary, Alberta based, natural gas storage company that owns 242 billion cubic feet (Bcf) of storage capacity in depleted natural gas reservoirs.

The principal methodology used in these ratings was Global Midstream Energy published in December 2010. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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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.

Paresh Chari
Asst Vice President - Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

No Related Data.
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