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Rating Action:

Moody's rates NGPL PipeCo debt Ba3; negative outlook

15 May 2012

Approximately $1.3 billion of new obligations rated

New York, May 15, 2012 -- Moody's Investors Service assigned Ba3 senior secured ratings to NGPL PipeCo LLC's (NGPL) approximately $500 million of new notes, a $600 to $800 million term loan, and a $75 million revolver that NGPL plans to implement in order to retire the $1.25 billion of debt due in December 2012. Moody's also changed NGPL's Speculative Grade Liquidity Rating to SGL-2 from SGL-4 as the company's looming refinancing and liquidity risks are eliminated by these transactions.

NGPL's Corporate Family Rating and Probability of Default Rating are unchanged at Ba3, where they have been since April 2 when Moody's last downgraded the company with a negative outlook. The company's existing notes also remain at Ba3, but their seniority will be changed to senior secured from senior unsecured as a result of this refinancing. The rating outlook remains negative.

These rating actions follow NGPL's announcements that it had received 97% of the $1.25 billion 2012 notes (roughly 40% of its debt) in its ongoing cash tender offer, and that it was offering the notes and the term loan to help finance it.

RATINGS RATIONALE

"The refinancing eliminates near-term liquidity concerns, but pressure on NGPL's profitability will be acute over the next twelve months," says Moody's vice president Mihoko Manabe. "In order to prevent credit metrics from weakening further, the company will need to renew its transport contracts on sufficient terms and significantly reduce its operating costs."

Moody's noted that a suite of contracts with Nicor Gas -- NGPL's biggest customer accounting for about 16% of its revenues -- is expiring in March 2013 and is expected to be negotiated by end of this year. Although Moody's believes that Nicor Gas will renew its contracts with NGPL, the terms of those new agreements may be less favorable than before and reduce NGPL's profitability over the next several years.

The negative outlook also reflects uncertainty as to whether NGPL can sufficiently offset revenue declines in its principal transport business by reducing operating costs. Much of its operating costs are relatively inflexible, and Moody's believes it will be a challenge to reduce costs, such as pipeline integrity spending, when they will be prone to rising over the next several years as more stringent safety rules are implemented.

The Ba3 ratings for the new notes and credit facility, as well as the existing notes due in 2017 and 2037, incorporate the fact that all of NGPL's corporate debt will be first lien debt and, as such, should carry the same rating as the company's Corporate Family Rating. These obligations share a collateral package, which includes a first priority lien on the pipeline and storage assets that make up the majority of the company's assets, and pledge of the stock in its sole material subsidiary, Natural Gas Pipeline Company of America. The existing notes due in 2017 and 2037 have been unsecured to-date, but the implementation of the secured credit facility will trigger a negative pledge clause that will result in all of these securities becoming equally and ratably secured with the shared collateral.

The loss given default assessment for the new secured term loan and revolver (LGD3, 45%) is slightly better than that for the notes (LGD4, 52%), because the credit facility, in addition to the above-mentioned collateral, is backed by the pledge of all other properties including the company's current assets, which are relatively minor.

The refinancing leaves the amount of debt at the NGPL level virtually unchanged, but over the next several years, debt will be reduced under term loan covenants that require mandatory debt repayments as well as 60% of any excess cash flow to be applied towards debt reduction. NGPL's ability to comply with these covenants will be facilitated by the imminent repayment of $600 million of bank and hedging obligations at its 80% owner Myria Acquisition LLC (not rated), which will relieve dividend pressure.

The speculative-grade liquidity rating of SGL-2 reflects good liquidity resources after the refinancing, which resolves near-term liquidity issues regarding the large debt maturity and potential revolver covenant violations. The refinancing pushes back the next debt maturity and revolver renewal to 2017. Until then, the company will have no scheduled debt maturities other than the mandatory repayments of its term loan. The debt-to-EBITDA covenant will be raised from its current limit of 6.75 times to 9.75 times through the quarter ending December 31, 2014, allowing some headroom above the 7 times range, where the company is likely to remain over the near term.

Moody's referred to NGPL's financial statements for the September 2011, December 2011, and March 2012 quarters as a baseline for its future performance, as they are the first three quarters which fully reflect the rate reductions ordered by the Federal Energy Regulatory Commission that were phased in between July 2010 and July 2011. After Moody's adjustments, these nine months' annualized funds flow from operations (FFO) of approximately $165 million was only 5% of Moody's adjusted post-refinancing total debt of $3,055 million. Adjusted EBITDA for the same period was roughly $410 million (excluding the $23 million gain from cushion gas sales), resulting in a debt-to-EBITDA ratio of 7.4 times.

The Ba3 Corporate Family Rating is based on NGPL sustaining FFO-to-debt in the 4.5% to 6% range. Under the current business environment and refinancing plan, NGPL is not likely to see any positive rating momentum for a few years.

As business conditions recover and transport rates increase, NGPL could eventually be considered for an upgrade to Ba2 if it can maintain FFO-to-debt back in the 7% range. Conversely, NGPL's rating could be downgraded if FFO-to-debt stays below 4.5%, due to a lack of success in renewing contracts under sufficient terms and reducing operating costs.

The last rating action for NGPL was on April 2, 2012, when its ratings were downgraded with a negative outlook.

The methodologies used in this rating were Natural Gas Pipeline published in December 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

NGPL PipeCo LLC is a holding company for Natural Gas Pipeline Company of America and other interstate natural gas pipeline assets. NGPL is 80% owned by Myria Acquisition LLC and 20% owned and operated by Kinder Morgan Kansas, Inc., based in Houston Texas.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the 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 information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Mihoko Manabe
VP - Senior Credit Officer
Infrastructure 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

William L. Hess
MD - Utilities
Infrastructure 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 rates NGPL PipeCo debt Ba3; negative outlook
No Related Data.
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