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05 Mar 2010
New York, March 05, 2010 -- Moody's Investors Service today upgraded the short-term rating
of WGL Holdings, Inc. (WGL) to Prime-2 from Not-Prime
and affirmed the existing A2 senior unsecured and Prime-1 ratings
assigned to its regulated utility operating subsidiary Washington Gas
Light Company (Washington Gas). The rating outlooks for WGL and
Washington Gas are stable.
"Today's upgrade of WGL's short-term rating was
driven by continued strong consolidated financial performance and a reassessment
of the risk profile and liquidity requirements of the company's
sizable non-regulated businesses," said Moody's
Vice President Scott Solomon.
WGL's ratio of consolidated cash flow from operations pre-changes
in working capital (CFO pre-WC) to debt and CFO pre-WC interest
coverage has been relatively consistent and averaged approximately 23%
and 5.4 times annually over the last three fiscal years.
The rating action acknowledges that WGL has managed the risk profile and
liquidity requirements of its unregulated activities appropriately.
This business, which continues to grow in scale and scope,
has a more elevated business profile than the company's local gas
distribution business and is a limiting factor for the assigned ratings.
WGL's primary non-regulated business is Washington Gas Energy
Services, Inc. (WGES) a sizable, regionally-focused
retail energy-marketing operation. Generally speaking,
WGES manages its business risk by matching its purchase of gas and electricity
to the related customer demand. Even so, the liquidity requirements
of the business are significant and tend to fluctuate based on market-commodity
WGES's source for liquidity support is WGL which is needed for working
capital and to post cash collateral requirements to counterparties.
WGL typically funds WGES's liquidity requirement through the issuance
of commercial paper. Its commercial paper program is back-stopped
by a $400 million syndicated credit facility that expires in August
2012. The syndicated credit facility appears to be adequately sized
to meet WGL's requirements and to provide financial flexibility.
WGL's peak quarterly commercial paper outstanding during fiscal
year 2009 was $127 million at March 31, 2009 (commercial
paper outstanding at December 31, 2009 was approximately $108
million). The approximately $273 million of availability
under WGL's revolving credit facility at March 31, 2009 ($292
million at December 31, 2009) was adequate to cover the maximum
collateral requirement that could have been triggered by a severe rating
In addition, WGL provides parental guarantees on behalf of WGES.
Parental guarantees at December 31, 2009 totaled $532 million.
The affirmation of Washington Gas's rating is supported by its historically
strong balance sheet and financial metrics as well as its ability to recover
operating expenses in a timely manner while earning a reasonable return
on equity. Washington Gas's ratio of CFO pre-WC to
debt, CFO pre-WC interest coverage and debt-to-capitalization
has averaged on an annual basis approximately 24%, 5.4
times and 43%, respectively, over the last three fiscal
years and its earned return on average equity during fiscal year 2009
was approximately 11%.
Washington Gas's financial metrics are expected to come under pressure
beginning fiscal year 2011 due primarily to increased debt levels needed
to fund growing capital expenditures.
The last rating action taken on WGL occurred on June 29, 2004 when
the short-term rating was changed to Not-Prime from Prime-3.
The A2 senior unsecured rating and Prime-1 short-term rating
for Washington Gas was affirmed at that time.
The principal methodology used in rating WGL and Washington Gas was Rating
Methodology: Regulated Electric & Gas Utilities, published
in August 2009 and available on www.moodys.com in the Rating
Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
WGL is a Washington, DC based holding company that owns Washington
Gas Light Company and has non-regulated businesses engaged in retail
energy marketing, heating, ventilating, air conditioning
products and services.
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
Moody's upgrades WGL Holdings to Prime-2; affirms Washington Gas
William L. Hess
Infrastructure Finance Group
Moody's Investors Service
No Related Data.
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