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Global Credit Research - 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.
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
"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
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
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.
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 changes Northern Illinois Gas outlook to negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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