Fitch Ratings has affirmed the 'BBB' long-term Issuer Default Rating
(IDR) and 'BBB' senior unsecured debt rating on Boardwalk Pipelines, LP
(Boardwalk). The 'BBB+' long-term IDR and 'BBB+' senior unsecured debt
rating on Gulf South Pipeline Company, LP (Gulf South) and Texas Gas
Transmission, LLC (Texas Gas) have also been affirmed.
A full list of rating actions is shown at the end of this release.
The Rating Outlook for all three entities is Stable.
These rating actions affect approximately $3.4 billion of outstanding
debt.
Boardwalk:
The affirmation of the Boardwalk rating is supported by its predictable
cash flows at operating subsidiaries Gulf South Pipeline Company, LP
(Gulf South), Texas Gas Transmission, LLC (Texas Gas) and Gulf Crossing.
Other considerations include strong support from its ultimate majority
owner, Loews Corporation (rated 'A+', Stable Outlook by Fitch). Factors
including the scale, quality and geographic diversity of its operations
are also supportive of the credit profile. Boardwalk's expanded
offerings to its customers with field services and storage increase the
company's diversity.
Concerns include a consolidated financial profile which remains highly
leveraged with the master limited partnership's (MLP) consolidated
debt-to-MLP adjusted EBITDA ratio around 5.5x for the 12 months ending
with the first quarter of 2012. Other concerns include a less favorable
recontracting environment for the pipelines, although it has somewhat
improved since last year. The completion of several major infrastructure
projects by competitors and the development of new high-growth shale
plays have resulted in increased competition and a reduction in basis
differentials from where they were historically.
Gulf South:
The affirmation of the rating at Gulf South is supported by its stable
cash flows which are supported by multi-year contracts which have a
weighted average contract life of approximately five years, support
through its parent and by its ultimate majority owners, Loews, and its
good market position in the Gulf Coast area. Gulf South sources natural
gas from some of the major production areas in that region, including
the Haynesville, Barnett, and Eagle Ford shale plays and offshore
Louisiana. Gulf South's system directly serves markets in the South and,
indirectly through unaffiliated pipelines serves markets in the
Southeast, Midwest, and Northeast, some of the higher-demand regions of
the U.S.
Concerns for Gulf South include a somewhat highly-levered financial
profile at Boardwalk and a less favorable recontracting environment for
the pipeline due to increased competition and low basis differentials.
Texas Gas:
Texas Gas's affirmation is supported by its stable cash flows which have
multi-year contracts with a weighted average contract life of six years,
support through its parent and by its ultimate majority owners, Loews,
and its favorable market position which includes access to natural gas
supplies in offshore Louisiana, East Texas and the Fayetteville shale in
Arkansas. The system directly serves markets in the Midwest and
indirectly serves the markets in the Northeast. In addition, its storage
facilities make Texas Gas a good candidate to serve the potential demand
from Midwest electric utilities that are considering the conversion of
their older coal-fired generation to natural gas in order to comply with
increasingly stringent environmental regulations.
Concerns for Texas Gas include a somewhat highly-levered financial
profile at Boardwalk and a less favorable recontracting environment for
the pipeline system due to increased competition and low basis
differentials.
Predictable Cash Flows:
Robust cash flows at Gulf South and Texas Gas are supported by firm
capacity reservation charges under contract that account for roughly 82%
of Boardwalk's consolidated revenues. Utilization charges related to
these firm contracts account for another 14% of consolidated revenues,
resulting in a large portion of EBITDA that is minimally affected by
changes in natural gas price fundamentals or broader economic conditions.
Strong Support from Loews:
The ratings on Boardwalk, Gulf South, and Texas Gas also reflect the
strong support of Loews. This support was evident most recently with
Boardwalk's $550 million acquisition of storage assets in late 2011. A
wholly-owned Loews subsidiary purchased 80% of the assets through a
joint venture, and in early 2012, Boardwalk acquired that interest which
was largely funded with equity proceeds.
Loews showed significant support to Boardwalk during the nearly $5
billion pipeline expansion projects that reached their peak financing
needs in 2008 and 2009. Loews provided $200 million of subordinated debt
and $1.35 billion in equity, $700 million of which was in the form of
low-distribution-paying Class B units that convert to common units after
June 30, 2013.
Boardwalk does not anticipate needing any further capital financing
support from Loews. However, Fitch views its prior support as being
indicative of Loews' desire to keep Boardwalk and its subsidiaries on a
sound financial footing.
Weaker Leverage Metrics at Boardwalk:
Boardwalk's consolidated financial profile remains highly leveraged. For
the 12 months ending March 31, 2012, Boardwalk's consolidated debt to
MLP adjusted EBITDA ratio was 5.5x, an increase from 5.2x and 5.0x at
the end of 2011 and 2010, respectively. Over the next 12-18 months,
Fitch expects leverage metrics to be in the range of 5-5.5x.
Less-Favorable Recontracting Environment:
The completion of several major infrastructure projects by competitors
over the past few years and the development of new high-growth shale
plays has resulted in increased competition and a reduction in basis
differentials. The combination of these factors along with a sustained
weak economy has resulted in pricing pressure on some contract renewals,
which has decreased revenues at both Gulf South and Texas Gas. Fitch
expects these tougher market conditions to continue at least through
2012.
Parent/Subsidiary Notching:
The one-notch difference in ratings between Boardwalk and its subsidiary
pipeline companies reflects the structural subordination of Boardwalk's
debt obligations to the outstanding debt of Gulf South and Texas Gas.
Company Profile:
Boardwalk is a subsidiary of Boardwalk Pipeline Partners, LP (BWP), a
publicly traded MLP. Loews owns 61% of BWP (excluding the incentive
distribution rights) and including the 2% general partner interest.
Boardwalk's operations are conducted by its five wholly-owned
subsidiaries: Gulf Crossing Pipeline Company LLC (Gulf Crossing), Gulf
South, Texas Gas, HP Storage and Field Services. These operating
subsidiaries combine for 14,300 miles of interstate natural gas pipeline
and 13 underground storage fields with 186 billion cubic feet (Bcf) of
aggregate working gas capacity.
Gulf Crossing consists of 360 miles of 42-inch pipe originating near
Sherman, TX and proceeding to the Perryville, LA area. Peak-day delivery
capacity is 1.7 Bcf/d, and average daily throughput at year-end 2011 was
1.2 Bcf/d.
Gulf South is a web-like system consisting of 7,360 miles of interstate
pipeline that delivers natural gas from the Gulf Coast area to on-system
markets in the South and off-system markets in the Southeast and
Northeast. Peak-day delivery capacity is 6.9 Bcf/d, and average daily
throughput at year-end 2011 was 4.3 Bcf/d. Gulf South also has two
natural gas storage facilities located in Louisiana and Mississippi that
have an aggregate 83 Bcf of working gas capacity.
Texas Gas is an interstate natural gas transmission company that has
6,100 miles of pipeline, extending from Louisiana, East Texas, and
Arkansas to the South and Midwest markets, with indirect access to the
Northeast markets through interconnections with unaffiliated pipelines.
Peak-day delivery capacity is 4.6 Bcf/d, and average daily throughput at
year-end 2011 was 3.2 Bcf/d. Texas Gas also has nine natural gas storage
facilities located in Indiana and Kentucky that have an aggregate 84 Bcf
of working gas capacity.
HP Storage was formed in 2011 and its assets were acquired through an
acquisition. It has seven salt dome natural gas storage caverns with 19
Bcf of working gas capacity. The storage is connected to Gulf South's
pipelines and there are plans to also connect to Gulf South's Southeast
expansion.
Field Services was also formed in 2011 and offers gathering and
processing in East Texas, the Marcellus Shale, and in the Eagle Ford.
Fitch has affirmed the following ratings with a Stable Outlook:
Boardwalk
--Long-term IDR at 'BBB';
--Senior unsecured debt at 'BBB'.
Gulf South
--Long-term IDR 'BBB+';
--Senior unsecured debt 'BBB+'.
Texas Gas
--Long-term IDR at 'BBB+';
--Senior unsecured debt at 'BBB+'.
Fitch has withdrawn the short-term IDR of 'F2' for Boardwalk, Gulf South
and Texas Gas. None issue commercial paper.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' Aug. 12, 2011;
--'Parent and Subsidiary Rating Linkage' Aug. 12, 2011;
--'Short-Term Ratings Criteria for Non-Financial Corporates' Aug. 12,
2011;
--'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors',
May 21, 2012;
--'Liquidity Review: Pipelines, Midstream, and MLPs', Dec.28, 2011.
Applicable Criteria and Related Research:
Liquidity Review: Pipelines, Midstream, and MLPs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=662830
Top Ten Questions Asked by Pipeline, Midstream and MLP Investors
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679549
Short-Term Rating Criteria for Non-Financial Corporates
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=663651
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
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PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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