NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'BBB-' Issuer Default Rating (IDR) and senior unsecured rating of El Paso Pipeline Partners Operating Company LLC (EPBO). Additionally, Fitch has affirmed the 'BBB' IDR and senior unsecured ratings of Colorado Interstate Gas Company, L.L.C. (CIG), and Southern Natural Gas Company, L.L.C. (SNG). The Rating Outlook is Stable. Roughly $3.9 billion in debt is affected by today's rating actions. See the full list of affirmations at the end of this release.
EPBO is a wholly owned subsidiary of El Paso Pipeline Partners, L.P. (NYSE: EPB), which in turn is ultimately owned by Kinder Morgan, Inc. (KMI; IDR 'BB+', Stable Outlook). EPBO owns and operates various natural gas pipeline systems and terminaling facilities, including CIG, SNG, Wyoming Interstate Company, L.L.C. (WIC), Elba Express Company L.L.C. (Elba Express), Southern LNG Company, L.L.C. (SLNG), Cheyenne Plains Gas Pipeline Company, L.L.C. (Cheyenne), a 50% stake in Ruby Pipeline Holding Company, L.L.C. (Ruby; 'BBB-', Stable Outlook), a 50% stake in Gulf LNG Holdings Group, LLC (Gulf LNG), and a 47.5% stake in Young Gas Storage Company, Ltd. (Young Gas).
The ratings recognize the expected stability of EPBO's earnings and cash flows which are supported by its lower business risk asset base consistent with most FERC-regulated pipeline assets. EPBO's subsidiaries exhibit consistent cash flow, low business risk and strong credit profiles. The affirmation at CIG and SNG reflects the low-risk nature of these pipelines coupled with solid credit and financial operating metrics. The ratings also reflect CIG and SNG's subsidiary relationship to their 100% owner parent company EPBO. As subsidiaries of EPBO, EPBO has substantial control over the pipelines' operations and finances, including distributions, which are needed to support debt at EPBO and distributions to EPBO's unit holders. Given this linkage, Fitch rates CIG and SNG only one notch higher than EPBO despite the strong individual credit and business risk profiles that CIG and SNG possess, which would likely suggest a higher rating as stand-alone entities.
KEY RATINGS DRIVERS
Scale and Diversity of Assets: Taken as a whole, the scale and regional diversity of EPBO's pipeline systems and operating assets which have access to the principal U.S. supply basins and deliver into major consumer markets, limit EPBO's exposure to shifting natural gas supply/demand dynamics. Additional delivery flexibility is provided from interconnected storage capacity and access to the Elba Island, GA liquid natural gas (LNG) receiving terminal. Each of the pipelines and storage facilities operates under FERC regulation. There is not meaningful credit 'ring-fencing' to protect the pipelines from affiliated company risk.
Stable Consistent Earnings and Cash Flow: During 2013, 93% of EPBO's consolidated revenues were generated through volume-insensitive capacity reservation charges under long-term contracts, limiting earnings, and cash flow volatility. Approximately 90% of SNG's revenue was from volume insensitive capacity reservation contracts with an average contract life of seven years. Approximately 92% of CIG's revenue was from volume-insensitive capacity reservation contracts with a weighted average life of seven years.
Structural Subordination: Debt at EPBO is structurally subordinate to debt at its operating subsidiaries.
Parent Company Affiliation: KMI owns the 2% GP interest in EPB and a 40% limited partnership interest. Fitch largely views EPBO on a standalone basis and believes the current rating appropriate given EBPO's size, scale and leverage metrics.
Adequate Liquidity: Liquidity is adequate and access to capital markets for debt or equity has not been an issue and is not expected to be one in the immediate future. Maturities are manageable and EPBO has full availability under its $1 billion revolving credit facility as of March 31, 2014. Additionally, it has $81 million of cash on the balance sheet. The credit facility requires that EPBO and WIC maintain a consolidated leverage ratio (consolidated indebtedness to consolidated EBITDA) as defined in the credit agreement as of the end of each quarter of less than 5.0x for any trailing four consecutive-quarter period, and 5.5x for any such four-quarter period during the three full fiscal quarters subsequent to the consummation of specified permitted acquisitions having a value greater than $25 million. EPB also has additional flexibility in its covenants for growth projects. EPBO is currently in compliance with its covenants. As of March 31, 2014, debt/EBITDA with none of the adjustments listed above was 3.8x.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--At EPBO Fitch would likely take positive credit action if debt/EBITDA were expected to move below 3.5x;
--Any uplift to EPBO's rating could trigger a positive rating action at CIG or SNG.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--At EPBO, Fitch would likely take negative credit action if debt/EBITDA were to move above 4.5x on a sustained basis. Fitch forecasts EPBO's consolidated debt to EBITDA to be between 3.8x-4.3x for 2014-2015 and distribution coverage at roughly 1.0x-1.1x. Outer year metrics (2016/2017) are expected to be slightly higher due to some growth project spending but return to the 4.0x-4.5x range as these projects are completed. To the extent that debt/EBITDA is expected to remain above 4.5x at EPBO on sustained basis and distribution coverage moves below 1.0x, Fitch would consider a negative ratings action;
--Any negative rating action at EPBO could trigger a negative rating action at CIG or SNG.
Fitch affirms the following ratings:
El Paso Pipeline Partners Operating Co., LLC
--IDR at 'BBB-';
--Senior unsecured debt at 'BBB-'.
Colorado Interstate Gas Company, LLC
--IDR at 'BBB';
--Senior unsecured debt at 'BBB'.
Southern Natural Gas Company, LLC
--IDR at 'BBB';
--Senior unsecured debt at 'BBB'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology, Including Parent and Subsidiary Linkage' (Aug. 5, 2013);
--'Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs', (April 18, 2013);
--'Rating Pipelines, Midstream, and MLPs - Sector Credit Factors' (Jan. 13, 2014);
--'Pipelines, Midstream, and MLP Stats Quarterly - Third Quarter 2013' (Dec. 17, 2013);
--'Investor FAQs: Recent Questions on the Pipeline, Midstream and MLP Sectors' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Pipelines, Midstream, and MLP Stats Quarterly - Third-Quarter 2013
Investor FAQs: Recent Questions on the Pipeline, Midstream, and MLP Sectors
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs
Rating Pipelines, Midstream and MLPs - Sector Credit Factors