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Announcement:

Moody's changes Northern Illinois Gas outlook to negative

07 Dec 2010

Approximately $500 million of debt affected

New York, December 07, 2010 -- Moody's Investors Service affirmed the rating of Nicor Inc. (Nicor, Prime-2 commercial paper rating) with a stable outlook. Moody's also affirmed the ratings of Nicor's subsidiary Northern Illinois Gas Company (NI-Gas, A2 issuer rating) but changed its outlook to negative from stable.

RATINGS RATIONALE

The change in NI-Gas' outlook follows Nicor's announcement that it has agreed to merge with a subsidiary of AGL Resources Inc. (AGL, its senior unsecured shelf rating at (P)Baa1) in which AGL will acquire all of Nicor's outstanding stock in a part stock, part cash transaction.

The definitive merger agreement puts the enterprise value of Nicor at roughly $3 billion. The merger is expected 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 Act.

"The negative outlook is based on the expectation of that the merger will combine Nicor with AGL, a more leveraged entity which will undoubtedly look to utilize the strong cash flow of NI-Gas to help service the additional debt to be taken on to consummate this acquisition," says Moody's Vice President Mihoko Manabe.

While Nicor has no long-term debt obligations at the parent level, AGL is expected to fund the roughly $1 billion cash portion of the consideration with corporate debt, which the Nicor subsidiaries, principally NI-Gas, will help to service along with the AGL subsidiaries.

Most likely around the consummation of the merger, NI-Gas's long-term ratings are expected to be downgraded by one notch, assuming that AGL finances this acquisition with sufficient equity to maintain its current Baa1 rating which was affirmed today with a stable outlook. NI-Gas's A2 issuer rating is likely to be downgraded by one notch to conform with those of AGL's rated operating subsidiaries Atlanta Gas Light Company and Pivotal Utility Holdings, which are rated one notch lower at A3 senior unsecured given NI-Gas's expected inclusion in AGL's money pool. NI-Gas's first mortgage bonds will continue to be rated two notches above its issuer rating in accordance with Moody's notching practice for utility mortgage bonds.

AGL's rating affirmation and stable rating outlook are based on AGL financing this $3 billion transaction with sufficient equity and obtaining low-cost debt financing around the current favorable rates so as to have minimal impact on the combined consolidated credit metrics. The rating affirmations are also subject to AGL 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. Aligning NI-Gas's post-merger ratings with those of its prospective sister companies assumes that NI-Gas will become part of AGL's money pool arrangement in which subsidiary funds are managed centrally.

Over the next few years, Moody's does not foresee upward rating pressure for Nicor pending the consummation of the transaction and the integration of the two companies after the merger; however, NI-Gas' outlook could be stabilized if the ICC were to place restrictions on the amount of dividends that could be upstreamed or if NI-Gas were not to be included in AGL's money pool.

Moody's most recent rating action on Nicor was on July 21, 2006, when Nicor's and NI-Gas's ratings were downgraded by one notch with a stable outlook. The principal methodology in rating Nicor 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 website.

Headquartered in Naperville, Illinois, Nicor Inc. is engaged in natural gas distribution, containerized shipping, and in several energy-related businesses.

RATINGS DISCLOSURES

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.

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

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Northern Illinois Gas outlook to negative
No Related Data.
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