Nov 6 - Fitch Ratings has assigned a 'BBB' rating to Boardwalk Pipelines,
LP's (Boardwalk) proposed $300 million senior unsecured bond offering.
The notes are to mature in 2023 and rank pari passu with
Boardwalk's senior unsecured debt. Proceeds are to be used to repay the
subordinated loan with Boardwalk Pipeline Holding Corp. (BPHC). BPHC is a wholly
owned subsidiary of Loews Corporation (rated 'A+' with a Stable Outlook by
Fitch). Proceeds will also be used to reduce borrowing on the bank facility.
A complete list of ratings for Boardwalk and its subsidiaries is found at the
bottom of this press release. The Rating Outlook for all three is Stable.
Boardwalk's rating is supported by its predictable cash flows at operating
subsidiaries Gulf South Pipeline Company, LP (Gulf South, 'BBB+'), Texas Gas
Transmission, LLC (Texas Gas, 'BBB+') and Gulf Crossing. Other considerations
include strong support from its ultimate majority owner, Loews Corporation.
Factors including the scale, quality and geographic diversity of its operations
also support the credit profile. Boardwalk's expanded offerings to its customers
with field services, storage and midstream increase the company's diversity.
Leverage has been improving (debt-to-adjusted EBITDA). For the LTM ending third
quarter 2012 it was 4.6x, significantly improved from 5.5x seen at the end of
2011. Longer term Fitch anticipates BWP will maintain leverage in the range of
4.75x-5.5x. The company has adequate liquidity and no significant debt
maturities in the near term.
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 historical levels.
Strong Support from Loews:
The ratings on Boardwalk, Gulf South, and Texas Gas also reflect the strong
support from parent Loews Corporation. This support was evident 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. Similar financing occurred for the $625 million acquisition of the
midstream which closed in October 2012.
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. As of October 14, BPHC
owns 55% of Boardwalk Pipeline Partners, excluding the incentive distribution
rights, and including the 2% general partner interests and 100% of the Class B
Boardwalk does not anticipate needing any further capital financing support from
Loews in the short-to-medium term. However, Fitch views its prior support as
being indicative of Loews' desire to keep Boardwalk and its subsidiaries on a
sound financial footing.
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.
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.
Boardwalk is a subsidiary of Boardwalk Pipeline Partners, LP (BWP), a publicly
traded MLP. Loews owns 55% of BWP (excluding the incentive distribution rights)
and including the 2% general partner interest. Boardwalk's operations are
conducted by its six wholly-owned subsidiaries: Gulf Crossing Pipeline Company
LLC (Gulf Crossing), Gulf South, Texas Gas, HP Storage, Boardwalk Midstream, LLC
(Boardwalk Midstream) and Boardwalk Acquisition Company, LLC, which owns
Boardwalk Louisiana Midstream, LLC (Boardwalk Louisiana Midstream). These
operating subsidiaries combine for 14,540 miles of interstate natural gas
pipeline and 13 underground storage fields with 197 billion cubic feet (Bcf) of
aggregate working gas capacity. In addition, they have capacity to store
approximately 20 million barrels of liquids.
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.
Boardwalk Midstream was also formed in 2011 and offers gathering and processing
in East Texas, the Marcellus Shale, and in the Eagle Ford.
With the October 2012 acquisition of Boardwalk Louisiana Midstream, Boardwalk
offers NGL services.
Fitch rates Boardwalk and its related entities as follows:
--Long-term IDR at 'BBB';
--Senior unsecured debt at 'BBB'.
--Long-term IDR 'BBB+';
--Senior unsecured debt 'BBB+'.
--Long-term IDR at 'BBB+';
--Senior unsecured debt at 'BBB+'.
What Could Trigger A Rating Action
Positive Drivers: If the company maintained leverage close to 4x on a sustained
basis, which does not seem likely.
Negative Drivers: Leverage metrics that were near 6x for a sustained period of
time; a change in its parent Loews' policy of supporting its subsidiaries; or an
aggressive change in business strategies which increased the company's risk.