TEXT-Fitch rates Texas Eastern Transmission offering 'BBB+'
Oct 19 - Fitch Ratings has assigned a 'BBB+' rating to Texas Eastern Transmission LP's (Texas Eastern; Fitch Issuer Default Rating 'BBB+') offering of $500 million in senior unsecured notes due 2022. The notes are senior unsecured obligations and will rank equally with all of Texas Eastern's other senior unsecured indebtedness. Proceeds will go to Texas Eastern's parent company and will be used primarily for the repayment of commercial paper, which was incurred to fund capital expenditures at Texas Eastern. The Ratings Outlook is Stable. Texas Eastern's rating and Stable Outlook reflect the strength of the company's credit profile and the low level of business risk associated with its FERC-regulated interstate pipeline operations. On a stand-alone basis, the pipeline system has the credit profile of a higher rated entity with moderate debt levels and solid, consistent earnings and cash flow. While Texas Eastern competes with numerous existing and proposed pipelines, system expansions and enhancements will position the asset to receive increasing supply from growing production regions like the Marcellus shale, further strengthening its competitive position. However, as a subsidiary of Spectra Energy Capital LLC (SEC; IDR of 'BBB'; Stable Outlook), the ratings of Texas Eastern remain linked to that of its parent. Texas Eastern continues to be functionally operated as a single integrated business unit within SEC. Texas Eastern and other U.S. operating companies also remain reliant on the parent company's pooled credit facilities at SEC for any short-term liquidity needs. Additionally, the ratings reflect the fact that Texas Eastern is in the midst of a large scale capital expenditure program which will significantly expand both the size of system and the ability of Texas Eastern to access and deliver new emerging supply sources to its customers. These projects are largely contracted for and should provide solid returns for Texas Eastern as they are completed. However, these investments do face the inherent risks associated with large construction projects, specifically potential cost overruns, construction delays, quality issues or start-up problems. Rating Triggers: Negative: Future developments that may, individually or collectively, lead to a negative rating action include: --A negative rating action at parent SEC; --Sustained decline in operating performance. --Significant speculative building or major cost overruns at planned projects which weigh on returns and metrics. Fitch expects leverage measures to increase slightly as Texas Eastern works on its planned expansions, and then move back in line with historical results. Debt-to-operating EBITDA for 2011 was 2.1x; Fitch expects debt-to-EBITDA to move to between 3.0x and 3.5x over the next several quarters during construction. As Texas Eastern completes its expansion projects, Fitch expects leverage to move back below 3.0x. Should leverage metrics remain at or near the 3.5x debt-to-EBITDA level for a prolonged period of time Fitch would consider a negative rating action. Positive: Future developments that may, individually or collectively, lead to positive rating action include: --A positive rating action at SEC . Texas Eastern's ratings are as follows: --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'. 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. 8, 2012 --'Parent and Subsidiary Ratings Linkage', Aug. 8, 2012 --'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors', May 21, 2012 --'Pipelines, Midstream, and MLP Stats Quarterly -2Q 2012, Sept. 27, 2012 --'Liquidity Review: Pipelines, Midstream, and MLPs', Dec. 28, 2011. Applicable Criteria and Related Research: Liquidity Review: Pipelines, Midstream, and MLPs Pipelines, Midstream, and MLP Stats Quarterly -- Second-Quarter 2012 Top Ten Questions Asked by Pipeline, Midstream and MLP Investors Parent and Subsidiary Rating Linkage Corporate Rating Methodology
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