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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
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in each case where the transaction structure and terms have not changed
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For any affected securities or rated entities receiving direct credit
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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.
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Boardwalk Pipelines to Baa3; outlook stable
No Related Data.
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