TEXT-Fitch puts Laclede Group rating on watch negative

Mon Dec 17, 2012 4:45pm EST

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Dec 17 - Fitch has placed the ratings of the Laclede Group, Inc. (LG)
on Rating Watch Negative following the announcement of a definitive agreement to
acquire the assets of Missouri Gas Energy (MGE) and New England Gas Company
(NEG) from Southern Union Company for approximately $1.035 billion. In addition,
Fitch has affirmed the ratings of Laclede Gas Company (LGC) with a Stable Rating
Outlook. A full list of ratings appears at the end of this release.

The purchase price is comprised of $1.015 billion in cash and approximately $20
million of assumed first mortgage bonds at NEG. LG has obtained a $1.02 billion
fully committed bridge loan facility, although Fitch expects that the permanent
financing, to be completed in 2013, will be a balanced mix of debt and equity.

The Negative Watch reflects the expectation for increased leverage at the parent
which will pressure credit metrics at their current rating category.
Post-merger, Fitch expects LG's EBITDA coverage to remain above 5.0x through
2015. Fitch does not factor in any cost synergies or concessions to obtain
regulatory approvals, which could temporarily suppress earnings.

Fitch estimates that the purchase price, based on a hypothetical 50% debt, 50%
equity mix will significantly increase leverage. Debt-to-EBITDA acquisition
financing is approximately 5.0x and Fitch estimates pro forma leverage will
approximate 4.0x to 4.5x over the next few years. The resulting leverage is
greater than prior forecasts.

The post-acquisition corporate and debt structure will weigh on ultimate rating
assignments. By acquiring assets, LG will establish corporate entities for MGE
and NEG. Fitch expects the permanent debt to be issued from MGE and NEG as well
as LG.

MGE and NEG are regulated natural gas local distribution companies (LDCs)
located in western Missouri and Massachusetts, respectively, that service
approximately 500,000 and 50,000 customers. The acquisition effectively doubles
LG's size by increasing its customer base to approximately 1.2 million and
solidifies the company's position as the largest LDC in Missouri.

For the LTM period ending Sept. 30, 2012, the acquired companies' combined
EBITDA approximated $96 million and the acquisition price reflects a roughly
10.8x EBITDA multiple, slightly higher but in line with other acquisitions in
the industry. Fitch expects customer concessions to be offered to obtain
regulatory approvals, which may temporarily pressure EBITDA.

The acquisition is subject to regulatory approvals from the Missouri Public
Service Commission (MPSC) and the Massachusetts Dept. of Public Utilities (MDPU)
and, notably, does not require shareholder approval. Management anticipates the
acquisition to close by the end of the third quarter of 2013. Fitch does not
expect to resolve the Rating Watch until after financing plans are defined
and/or regulatory approvals are obtained. Fitch factors in a regulatory approval
process of 12 months or longer.

LGC's ratings have been affirmed; Fitch does not believe the acquisitions will
alter the company's financial profile. Fitch expects to resolve its Rating Watch
after regulatory approvals are obtained. The corporate and debt structure,
financing plan, and customer concessions will be important in determining
post-acquisition ratings for LG. Should a rating downgrade occur, a one-notch
downgrade is possible.

LG is a utility holding company. Its primary subsidiary is LGC, the largest
natural gas distribution company in Missouri, which serves approximately 628,000
customers in St. Louis and the surrounding metropolitan area. LG's largest
unregulated subsidiary, Laclede Energy Resources, is engaged in the marketing of
natural gas and related activities. Other smaller subsidiaries include Laclede
Pipeline, a FERC-regulated transporter of liquid propane, a real estate
development business, a natural gas compressor subsidiary, and other financial
investments.

Fitch places the following ratings on Rating Watch Negative:

LG
--Issuer Default Rating (IDR) 'A-'.

Fitch affirms the following ratings with a Stable Outlook:

LGC
--IDR at 'A-';
--First mortgage bonds at 'A+';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.


Additional information is available on 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);
--'Rating North American Utilities, Power, Gas and Water Companies' (May 3,
2012);
--'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 9, 2012).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating North American Utilities, Power, Gas, and Water Companies
Short-Term Ratings Criteria for Non-Financial Corporates
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