Fitch Affirms Laclede Group, Inc. and Laclede Gas Co. at 'A-'; Outlook Stable

Fitch Ratings has affirmed the outstanding ratings for The Laclede Group, Inc. (LG) and its regulated gas utility subsidiary Laclede Gas Co. (LGC). The Rating Outlook for both entities is Stable. A full list of affected ratings is included below. Approximately $364 million of outstanding long-term debt and $46 million of commercial paper is affected.

LG's ratings and Stable Outlook reflect the low business risk and solid financial profile of its core regulated gas distribution business, which accounted for approximately 90% of operating EBITDA in fiscal 2011. The ratings also consider the risk profile of its gas marketing subsidiary, Laclede Energy Resources (LER) and the expectation that this business will generally be less than a quarter of operating income.

Solid, Predictable Utility Operations: LGC's ratings are supported by the utility's stable, primarily residential customer base, diverse gas supply, substantial storage capacity, and manageable capital spending and external funding requirements. LGC's rate structure promotes cash flow stability through a Missouri Public Service Commission (MPSC) approved weather-mitigation rate design, a forward-looking purchased gas adjustment mechanism (PGA) that can be adjusted up to four times per year, and an infrastructure surcharge mechanism for eligible capital expenditures.

Unregulated Business Risk Manageable: While the operations of LER present additional risks including counterparty credit and commodity price exposure to the extent hedging efforts are not effective, Fitch notes that the business is managed fairly conservatively. LER operates under a parental guarantee, which limits the amount of collateral postings required and risk limits are manageable for the size of the company. However, not unlike others in the industry, LER's business has continued to be negatively impacted by the absence of volatility in the natural gas markets and reductions in basis differentials.

Consistent Financial Results: Financial results in fiscal 2011 at the utility continued to reflect management of costs as well as the positive impact of higher rates that went into effect last year. Leverage as measured by Debt to EBITDA improved to 3.28 times (x) as did EBITDA interest coverage, to 5.4x, reflecting the higher earnings. Consolidated results were similarly improved given the prominence of the utility operations despite weaker performance from LER.

Solid Cash Flow and Liquidity: LG has been free cash flow positive in recent years and is expected to remain so despite planned capital expenditures for accelerated distribution system replacement. Consolidated liquidity is strong as the company renewed its bank facilities in July of this year for five years, maintaining a $50 million credit facility at the parent level and a $300 million at the LGC level. Notably the new facilities no longer include a debt to EBITDA covenant or material adverse change language. At fiscal year-end Sept. 30, 2011, this facility was undrawn; however, LGC had outstanding commercial paper of $46 million.

LG is a utility holding company. Its primary subsidiary is LGC, the largest natural gas distribution company in Missouri, which serves approximately 625,000 customers in St. Louis and the surrounding metropolitan area. LG's largest unregulated subsidiary, LER, 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 affirms the following ratings:

LG

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

LGC

--IDR at 'A-';

--First mortgage bonds at 'A+';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

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);

--'Notching and Recovery Ratings for the Utilities Sector' (Aug. 12, 2011);

--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648449

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

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Contacts:

Fitch Ratings
Brian Bertsch, [phone]
Media Relations, New York
[e-mail]
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Primary Analyst:
Donna McMonagle, [phone]
Managing Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Daniel Neama, [phone]
Associate Director
or
Committee Chairperson
Glen Grabelsky, [phone]
Managing Director