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
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.
--'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
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
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