TEXT-Fitch cuts NiSource issuer default rating to 'BBB-'

(The following statement was released by the rating agency)

Feb 4 - Fitch Ratings has downgraded the outstanding ratings for NiSource
Inc. (NI.N) and its subsidiaries as follows:
NiSource
--Issuer Default Rating (IDR) to 'BBB-' from 'BBB'.
NiSource Capital Markets, Inc. (NI Capital Markets)
--IDR to 'BBB-' from 'BBB';
--Senior unsecured debt to 'BBB-' from 'BBB'.
NiSource Finance Corp. (NI Finance)
--IDR to 'BBB-' from 'BBB';
--Senior unsecured debt to 'BBB-' from 'BBB';
--Short-term IDR to 'F3' from 'F2';
--Commercial paper (CP) to 'F3' from 'F2'
Northern Indiana Public Service Co. (NIPSCO)
--IDR to 'BBB-' from 'BBB';
--Senior unsecured debt to 'BBB' from 'BBB+'.
Jasper County (IN)
Michigan City (IN)
--Senior unsecured pollution control revenue bonds to 'BBB' from 'BBB+'.
Approximately $6.2 billion of outstanding long-term debt is affected. The
Rating Outlook for NI and its subsidiaries is Stable.
The rating action reflects Fitch's expectation that NI will experience
challenging operating and financial conditions and a potential weakening in
credit metrics in 2009. The unfavorable economic and capital market environment
could continue for the full year and beyond. At NIPSCO the recessionary U.S.
economy will contribute to weakening industrial demand and lower margins. Steel
and steel related businesses, NIPSCO's largest industrial customer category,
have been particularly hard hit in recent months. Fitch notes that domestic
steel production has been declining since August and is currently at less than
50% capacity utilization. Also contributing to weakening financial results are
increasing electric operating costs, primarily the result of the mid-2008
purchase of the $330 million Sugar Creek gas-fired electric generation plant.
Future earnings will also be affected by increasing pension costs which could
be $100 million greater in 2009 than 2008 and higher interest expenses. Based
on current conditions Fitch expects NI's consolidated 2009 credit measures to
be generally consistent with a 'BBB-' rating.
Planned capital spending at NI's operating subsidiaries, while reduced to $800
million in 2009 from in excess of $1 billion, is expected to be relatively
large over the next several years. In addition to companywide maintenance and
growth spending, NIPSCO must address its long-term capacity shortfall which
could result in the future purchase or construction of new electric generation.
At the same time, debt maturities will be significant with nearly $1.4 billion
of NI Finance long-term debt maturing by the end of 2010. In addition, NI
Finance's seasonal $500 million short-term revolving credit facility matures on
March 23, 2009. The once planned monetization of Columbia Gulf through a MLP
dropdown is now impractical. Given limited capital market and bank liquidity
and depressed equity values, financing costs are expected to be up
significantly. NI Finance has recently received written commitments from a
syndicate of banks for $265 million of unsecured two-year term debt maturing in
April 2011. While the term debt will provide a temporary liquidity cushion, the
issuance of additional long-term debt is anticipated in each of the next
several years. NI's inability to maintain adequate liquidity and address its
refinancing and capital spending needs in a timely fashion would likely result
in a negative rating action.
Favorable rating considerations include the low business risk and stable
operating performance generated by NI's geographically diverse mix of regulated
operations and the positive effect of increased natural gas utility rates in
Ohio and Pennsylvania. Virtually 100% of NI's earnings now come from its
utility and pipeline subsidiaries. With the sale of the Whiting Clean Energy
co-generation facility to BP Alternative Energy North America Inc. in mid-2008,
NI completed the divestiture of its higher risk and least profitable
businesses. Growth initiatives have modest risk and are complementary to
existing core operations. Current pipeline and storage expansion projects have
favorable locational and contractual characteristics. Furthermore, working
capital is reduced with lower natural gas prices.
Regulatory mechanisms have generally provided timely cost recovery and
supported relatively stable operating results. On Dec. 3, 2008, the Public
Utilities Commission of Ohio approved Columbia Gas of Ohio's settled rate case.
This will result in a $47.1 million annual increase in revenues and was its
first base rate increase in fourteen years. On Oct. 23, 2008, the Pennsylvania
Public Utility Commission approved Columbia Gas of Pennsylvania's $41.5 million
rate case settlement. The new rates in Ohio and Pennsylvania became effective
in the fourth quarter of 2008.
On Aug. 29, 2008, NIPSCO filed its first full rate case with the Indiana
Utility Regulatory Commission in twenty years. The filing was modified on Dec.
22, 2008. NIPSCO is requesting among other things the inclusion of Sugar Creek
in rate base. The base rate increase, if fully approved, would result in an
$85.7 million increase in revenues. The rate case also proposes a new tracker
to recover any MISO charges currently being deferred, recovery of purchase
power energy and capacity costs and a sharing with customers of off-system
sales and transmission revenues. The rate case review is expected to take
between 12 to 18 months with new rates expected to be effective in late 2009 or
early 2010. The inclusion of Sugar Creek in rate base and a reasonable revenue
increase would be viewed favorably by Fitch.
Contact: Ralph Pellecchia +1-212-908-0586, New York or Karen Anderson
+1-312-368-3165, Chicago.