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By clicking “I AGREE”, you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s information that becomes accessible to you (the “Information”). References herein to “Moody’s” include Moody’s Corporation. and each of its subsidiaries and affiliates..

 

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Rating Action:

Moody's downgrades Boardwalk Pipelines to Baa3; outlook stable

05 Nov 2014

Approximately $3 billion of rated debt affected

New York, November 05, 2014 -- Moody's Investors Service downgraded Boardwalk Pipelines, LP's (Boardwalk) senior unsecured ratings to Baa3 from Baa2. Moody's also downgraded the senior unsecured ratings of Gulf South Pipeline Company (Gulf South) and Texas Gas Transmission LLC (Texas Gas) to Baa2 from Baa1. The rating outlook for all three entities was changed to stable from negative. Boardwalk is an operating partnership subsidiary of Boardwalk Pipeline Partners, LP (BWP, unrated), a publicly traded master limited partnership (MLP) that guarantees Boardwalk's debt. Gulf South and Texas Gas are wholly owned subsidiaries of Boardwalk.

"Boardwalk's financial leverage is likely to remain elevated for several years as it funds capital projects and acquisitions to replace earnings in its core pipeline's business," commented Pete Speer, Moody's Senior Vice-President. "While the partnership has made substantial progress during 2014 in lining up sound capital projects backed by firm customer contracts, the ratings are more appropriately positioned at Baa3 to reflect the extended period of weaker credit metrics and accompanying execution risk."

RATINGS RATIONALE

Boardwalk is contending with earnings declines in its core long-haul pipeline business caused by the changing flows of natural gas supply and demand patterns, particularly in the US Northeast. The partnership has been successfully contracting projects to replace these earnings and potentially restore earnings growth in future years, but the natural lag in earnings response from invested capital and acquisitions has increased Debt/EBITDA towards 5.5x. Moody's expects Boardwalk's leverage to remain above 5x through 2016. Management's longer term target of 4x Debt/EBITDA will take additional time beyond 2016 to be achieved.

Boardwalk's Baa3 senior unsecured ratings are supported by the largely fee based nature of its revenues and limited direct commodity price risk. The ratings also benefit from Loews Corporation's (Loews, A2 stable) controlling ownership and ongoing financial support. Loews owns the general partner interest in BWP and about 52% of its limited partner interests. A Loews subsidiary has entered into a subordinated loan agreement whereby Boardwalk can borrow up to $300 million on a subordinated basis to support its capital investments. This support and Boardwalk's reduced distribution payout helps mitigate the risks of the partnership's high financial leverage.

Gulf South and Texas Gas's Baa2 senior unsecured ratings reflect their creditors' priority claims to the respective pipeline's assets. The ratings are supported by both pipeline's respective stand-alone market positions, quality of supply sources, contract quality, and lower stand alone financial leverage than Boardwalk. Although neither pipeline guarantees Boardwalk's senior notes, their positive credit attributes are restrained by their importance to Boardwalk's ability to service its debts and make distributions to its GP and LP ownership. The implicit burdens of Boardwalk's debt and distributions are incorporated into the pipelines' ratings.

The stable outlook is based on Moody's expectation that Debt/EBITDA will peak around 5.5x and trend towards 5x through 2016. In order for Boardwalk's, Gulf South's and Texas Gas' ratings to be upgraded, Boardwalk's financial leverage would have to decline below 4.5x on a sustainable basis. If leverage were to increase higher than expected because of project cost overruns or faster than anticipated earnings deterioration in the existing business then the three ratings could be downgraded. Debt/EBITDA above 6x at Boardwalk would pressure the ratings.

Downgrades:

..Issuer: Boardwalk Pipelines, LP

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa3 from Baa2

..Issuer: Gulf South Pipeline Company, LP

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa2 from Baa1

..Issuer: Texas Gas Transmission, LLC

....Senior Unsecured Regular Bond/Debentures, Downgraded to Baa2 from Baa1

Outlook Actions:

..Issuer: Boardwalk Pipelines, LP

....Outlook, Changed To Stable From Negative

..Issuer: Gulf South Pipeline Company, LP

....Outlook, Changed To Stable From Negative

..Issuer: Texas Gas Transmission, LLC

....Outlook, Changed To Stable From Negative

The principal methodology used in rating Boardwalk was the Global Midstream Energy published in December 2010. The principal methodology used in rating Gulf South and Texas Gas was the Natural Gas Pipelines published in November 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Boardwalk Pipelines, LP is an operating partnership subsidiary of BWP. The partnership provides interstate natural gas transportation through its wholly owned subsidiaries Gulf South, Texas Gas and Gulf Crossing Pipeline Company LLC (unrated). It also owns and operates natural gas gathering, processing, fractionation and storage facilities and natural gas liquids (NGL) pipeline and storage facilities.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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.

Peter Speer
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's downgrades Boardwalk Pipelines to Baa3; outlook stable
No Related Data.
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