Fitch Ratings says that Boardwalk Pipelines, LP's (BWP, 'BBB' with a Stable Outlook) acquisition of the remaining stake in Boardwalk HP Storage Company (HP Storage) will not have an immediate impact on the company's ratings. The 80% stake is being acquired from Boardwalk Pipelines Holding Corp., a wholly-owned Loews Corporation subsidiary (Loews, rated 'A+' with a Stable Outlook).
HP Storage was formed as a joint venture (JV) with Loews in December 2011 to acquire Petal Gas Storage L.L.C. and Hattiesburg Gas Storage Company and other assets for $550 million in cash. The JV established a $200 million five-year term loan at the time of the acquisition. BPHC owns seven natural gas storage caverns and a transmission line in Mississippi. HP Storage is currently developing a new salt storage cavern for storage which is expected to be in service in the first quarter of 2013 and cost $35 million.
Transaction Financing: Fitch views BWP's financing of the acquisition as fairly neutral from a credit perspective given the use of debt and equity. BWP initially took a 20% stake in the joint venture in December 2011 for $70 million, waited to raise $250 million of equity in January 2012 and then acquired the remaining 80% stake for $285 million. BWP also assumed BPHC's five-year $200 million term loan.
Debt Maturities: BWP's $950 million revolver matures in June 2012. The revolver allows Boardwalk Pipelines and its subsidiaries, Gulf South Pipeline Company and Texas Gas Transmission, LLC, to borrow subject to sub-limits. When the revolver matures, BWP can elect to have it converted to a term loan which will mature in June 2013.
BWP also has a $100 million subordinated loan which matures in December 2012. However, if BWP extends the maturity date on its revolver, the maturity date for the subordinated loan can be extended until December 2013. A $225 million Gulf South note is due in August.
Liquidity: At the end of 2011, BWP's liquidity was good and included $12 million in cash and $492 million available on the $950 million revolver. Between year-end and Feb. 21, borrowings were reduced and availability increased to $607 million. The bank facility has financial covenants which include maximum leverage (as defined by the credit agreement) of 5.0 times (x).
Leverage: At the end of 2011, leverage defined by Fitch as debt to MLP EBITDA was 5.2x, up from 5.0x at the end of 2010. Fitch estimates that leverage on a pro forma basis will be approximately 5.6x at the end of 2011 when accounting for the equity offering of $250 million, a $285 million payment to Loews for the 80% interest in the joint venture, and the assumption of $200 million of debt.
BWP's debt has remained high while EBITDA fell to $618 million in 2011 against $658 million in 2010. EBITDA was impacted by lower winter demand volumes. Operating and maintenance costs were up $19 million. Fitch expects leverage to fall between 4.5x and 5.0x by the end of 2012 on improved volumes, the acquisition of HP Storage and new projects in the coming year.
Strong Support from Loews: BWP's rating is supported by its ultimate majority owner Loews Corporation's (Loews, IDR 'A+' with a Stable Outlook) strong parental support. Fitch views Loews' willingness to form a JV for the Petal/Hattiesburg assets and prior capital financing assistance to BWP during 2008 and 2009 as being indicative of Loews' desire to keep BWP and its subsidiaries on sound financial footing.
Capital Expenditures: In 2011, capital expenditures were $213 million. Of the total, $47 million was for strategic spending, $95 million was for maintenance and $71 million was for the 20% stake in HP Storage. In 2012, BWP plans to spend $255 million for growth projects and $91 million for maintenance. In addition, BWP will spend $35 million for the HP Storage cavern development between 2012 and 2013.
Fitch currently rates BWP as follows:
--Long-term IDR 'BBB';
--Senior secured debt 'BBB'.
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:
--'Boardwalk Pipelines, LP' Full Rating Report (Dec. 16, 2011);
--'2012 Outlook: Natural Gas Pipelines and MLPs' (Dec. 7, 2011);
--'Natural Gas Pipelines: Hot Topics - Long-Term Trends Affecting Pipeline Risk' (Oct. 13, 2011);
--'Corporate Rating Methodology' (Aug. 12, 2011).
Applicable Criteria and Related Research:
Boardwalk Pipelines, LP
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=660689
2012 Outlook: Natural Gas Pipelines and MLPs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=659191
Natural Gas Pipelines: Hot Topics -- Long-Term Trends Affecting Pipeline Risk
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=652851
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
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