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Rating Action:

Moody's rates Niska's new notes B2; affirms B1 CFR

28 Feb 2014

Approximately $575 million of debt rated

NOTE: On June 01, 2014, the press release was revised as follows: In the Regulatory Disclosures section, added the Canada Ancillary Disclosure as the fourth paragraph. Revised release follows.

Toronto, February 28, 2014 -- Moody's Investors Service, ("Moody's") assigned a B2 rating to Niska Gas Storage Canada ULC's proposed $575 million senior unsecured notes. Niska Gas Storage Canada ULC's is a wholly-owned subsidiary of Niska Gas Storage Partners LLC (Niska). Niska's Corporate Family Rating (CFR) of B1, Probability of Default Rating (PDR) of B1-PD and Speculative Grade Liquidity rating of SGL-3 were affirmed. The rating outlooks are stable.

The proceeds from the notes offering will be used to call the $644 million of senior unsecured notes currently outstanding.

Assignments:

..Issuer: Niska Gas Storage Canada ULC

....Senior Unsecured Regular Bond/Debenture, Assigned B2

....Senior Unsecured Regular Bond/Debenture, Assigned a range of LGD5, 70 %

Outlook Actions:

..Issuer: Niska Gas Storage Canada ULC

....Outlook, Changed To Stable From Rating Withdrawn

..Issuer: Niska Gas Storage Partners LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: Niska Gas Storage Partners LLC

.... Probability of Default Rating, Affirmed B1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

.... Corporate Family Rating, Affirmed B1

RATINGS RATIONALE

Niska's B1 CFR is driven by the cash flow volatility from its natural gas arbitrage business, large distributions to shareholders, high leverage, and only about 55% of revenue coming from fee-based contracts. The rating recognizes that Niska has historically not lost money on its arbitrage business, even though recent cash flow has been materially reduced due to a narrowing of the price of summer gas purchased versus the winter gas sold. Niska's storage locations are also strategically important to the natural gas industry.

In accordance with Moody's Loss Given Default methodology, the $575 million senior unsecured notes are rated one notch below the B1 CFR because of the existence of the prior-ranking $400 million senior secured revolver.

The SGL-3 Speculative Grade Liquidity rating reflects adequate liquidity through the end of fiscal year 2015 (March 31, 2015). At December 31, 2013, Niska had minimal cash and $240 million available, after $34 million in letters of credit, under its $400 million senior secured borrowing base revolver, which matures in 2016. The revolver is available in the amount of $200 million each to AECO Gas Storage Partnership and Niska Gas Storage US, LLC. We expect positive free cash flow of about $55 million through FY2015. We expect Niska to remain compliant with the fixed charge coverage ratio (1.1x) under its revolver that governs the ability to draw more than 85% of the revolver commitment through this period. The company has no major debt maturities. Niska has little in the way of non-core assets that could be sold.

The stable outlook assumes that the compression in summer-winter spreads has bottomed and adjusted EBITDA will remain at about $140 million, including $11 million of Moody's standard adjustments, and that third-party term contracts continue to comprise about 75% of storage capacity.

The rating could be upgraded if debt to EBITDA, when inventory borrowings are low, is likely to be sustained below 3.5x. An upgrade would also be contingent on contracting at least 80% of storage capacity and if there was a greater reliance on fee-based contracts for revenue.

The rating could be downgraded if debt to EBITDA , when inventory borrowings are low, is likely to be sustained above 5x. A consistent reliance on the arbitrage business for more than 30% of storage capacity or debt funded distributions could also lead to a downgrade.

The principal methodology used in this rating was the Global Midstream Energy published in December 2010. Other methodologies used include 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.

Niska is a Calgary, Alberta based natural gas storage master limited partnership, which owns approximately 242 billion cubic feet (Bcf) of storage capacity in depleted natural gas reservoirs.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody’s has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report “Ancillary or other permissible services provided to entities rated by MIS’s credit rating agency in Canada” on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

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.

Paresh Chari
Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's rates Niska's new notes B2; affirms B1 CFR
No Related Data.
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