Fitch Rates Boardwalk's Proposed $300MM Offering 'BBB'; Outlook Stable
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 units.
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.
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. 12, 2011;
--'Parent and Subsidiary Rating Linkage' Aug. 12, 2011;
--'Short-Term Ratings Criteria for Non-Financial Corporates' Aug. 12, 2011;
--'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors', May 21, 2012;
--'Liquidity Review: Pipelines, Midstream, and MLPs', Dec.28, 2011.
Applicable Criteria and Related Research:
Liquidity Review: Pipelines, Midstream, and MLPs
Top Ten Questions Asked by Pipeline, Midstream and MLP Investors
Short-Term Rating Criteria for Non-Financial Corporates
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology
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