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16 Nov 2010
New York, November 16, 2010 -- Moody's Investors Service rated El Paso Pipeline Operating Company,
L.L.C's (EPB Operating) new notes Ba1 (EPB Operating).
Proceeds from the new notes will be used to partially fund EPB's
purchase of an additional 15% ownership interest in Southern Natural
Gas (SNG), a regulated interstate pipeline system owned by El Paso
Corp. (EP) the general partner and majority owner of EPB.
EPB is also acquiring the remaining 49% interest in the Elba Express
Pipeline and Southern LNG (SNLG) from EP that is does not own.
Total consideration for the incremental interest in SNG, Elba Express,
and SLNG is approximately $1.1 billion. EPB will
fund the consideration using $415 million of cash on hand from
an equity issuance completed in September and another $346 million
is being raised from a units offering in conjunction with this transaction.
These acquisitions will increase EPB's total ownership interest
in SNG to 60% and the interest in Elba Express and SLNG to 100%
"This acquisition is consistent with Moody's expectation that
EPB will continue acquiring additional interests in the assets in which
it does not own a 100% interest with a balance of debt and equity,"
said Ken Austin, Moody's Vice President. "The
acquisition of the additional interest in SNG, SLNG, and the
Elba Express Pipeline gives EPB's greater earnings and cash flows
from these stable cash flow generating assets while also reducing some
of EPB's structural complexity. "
The Ba1 rating considers the approximate 50% equity funded purchase
of the additional equity interests. This balanced funding keeps
the company's leverage profile in-line with expectations
for the rating while enhancing the overall scale and further improving
the balance in earnings and cash flows.
The Ba1 CFR also reflects the structural complexity through equity interests
in some of its assets and the fact that EP is the General Partner of EPB,
owns the majority of the L.P. units of EPB, and also
owns the remaining equity interests in EPB's assets. Unlike the
natural gas pipelines that are rated investment grade on a stand-alone
basis, the additional feature of the MLP distributions and the lack
of 100% ownership of the equity interests all of its assets results
in the CFR for EPB being two levels above El Paso but one below the Baa3
rating on the pipelines, given its proportional ownership interest
them along with EP being the general partners and owner of the remaining
interest in EPB 's assets.
The stable outlook assumes that EPB's leverage will remain under
4.0x through 2011 after considering a full year of owning 100%
of the majority of its assets.
However, negative ratings pressure would come from leverage rising
to over 4.0x on a sustained basis. Conversely, positive
ratings pressure would be driven by the continued acquisition of equity
interests in the assets it owns if executed with sufficient equity to
keep leverage in-line with current levels.
Under Moody's Loss Given Default (LGD) methodology, the new
and existing notes are rated the same as the CFR. The notes are
ranked pari-passu with the senior revolving credit facility,
which is also unsecured, making up the majority of the liability
waterfall under LGD.
The last rating action for El Paso Pipeline Partners Operating Company,
L.L.C. was on June 21, 2010 when we rated the
company's senior notes offering.
The principal methodologies used in this rating was Midstream Energy Companies
and Partnerships Industry Rating Methodology published in September 2007,
and Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
El Paso Pipeline Partners Operating Company, L.L.C.
is the subsidiary holding company for El Paso Pipeline Partners,
L.P., a Master Limited Partnership headquartered in
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Investors Service provides a date that it believes is the most reliable
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates El Paso Pipeline Partners' new notes Ba1
250 Greenwich Street
New York, NY 10007
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