Reuters: Financial Services and Real Estate: TEXT-Fitch affirms Spectra Energy Capital LLC

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TEXT-Fitch affirms Spectra Energy Capital LLC Jun 1st 2012, 17:29 Fri Jun 1, 2012 1:29pm EDT June 1 Fitch Ratings has affirmed the outstanding ratings of Spectra Energy Capital, LLC (SEC) and Texas Eastern Transmission, LP (TETLP). This action affects $3.2 billion of debt at SEC and $1.2 billion of long-term debt at TETLP as of March 31, 2012. The Rating Outlooks are Stable. The full list of ratings is shown at the end of this release. Key Rating Factors: Stable, Predictable Cash Flows: SEC's rating affirmation reflects the diversity and quality of its asset base and the high percentage of cash flows derived from stable pipeline, storage and gas distribution assets. The ratings reflect the earnings and cash flow stability driven by SEC's high percentage of fee-based and capacity reservation revenue derived from the company's operations, principally its large-scale interstate pipelines, a sizable gas distribution company in Ontario, Western Canadian gathering and processing business, and its storage assets. Strategically Located, Diverse Asset Base: SEC's asset base represents one of the largest natural gas infrastructure businesses in North America. The company's assets are strategically located to capitalize on the significant investment and growth in natural gas production in recent years from most major North American producing basins. The company's pipelines are also situated to capitalize on future growth in new basins, such as the Marcellus and Eagle Ford Shales. Large-Scale Capex Program: The ratings consider that SEC is in the middle of a large-scale capital expenditure program, with over $3 billion in total expected to be invested over the next several years (2012 to 2015). Given the anticipated investments and the company's sizable dividends, Fitch's expectations are that SEC will generate negative free cash flow for several years and credit metrics will weaken slightly. Fitch believes that the inherent risks of the capital program, however, are partially mitigated by the focus on pipeline and storage expansion projects, which are backed by firm capacity commitments generally under long-term contracts. Capex Temporarily Weighs on Metrics: Fitch believes SEC's core regulated assets will provide the stability needed to maintain credit quality, and the incremental EBITDA provided as growth projects come online will result in improved metrics, more in line with similarly rated peers. Fitch believes SEC should be able to fund future capital expenditure levels with a moderate amount of additional leverage, and that leverage measures will move lower as projects come on line. Fitch expects consolidated Debt to EBITDA of between 4.25x to 4.5x for 2012 and 2013, moving closer to 4.0x by 2015 as construction is completed and projects start generating returns. In calculating credit metrics, Fitch adjusts EBITDA to include cash distributions received from non-consolidated affiliates. Liquidity Adequate: Fitch believes SEC's liquidity to be adequate. On a consolidated basis SEC has $2.9 billion of committed U.S. and Canadian facilities. Total availability as of March 31, 2012 was $1.9 billion. While ongoing access to capital markets should be available to SEC, Spectra credit facilities would support a significant portion of capital spending and debt maturities if needed. Credit concerns include the structural subordination of SEC's debt to approximately $6.9 billion of subsidiary debt. Additionally, SEC remains exposed to commodity price risk through its Empress natural gas liquids system and its 50% interest in DCP Midstream, LLC (DCP; Fitch IDR of 'BBB', with a Stable Outlook). Catalysts for a negative rating action would include a significant decline in distributions from DCP, significant cost overruns on capital projects, or the increased exposure of earnings and cash flow to changes in commodity prices. The Stable Outlook reflects Fitch's expectation that the benefit to creditors of SEC's stable pipeline and storage and distribution assets offsets the volatility in cash flows of SEC's midstream operations and higher leverage due to its large capital spending program. TETLP Credit Profile Strong: TETLP's affirmation and Stable Outlook reflect the strength of the company's credit profile and the low level of business risk associated with its FERC-regulated interstate pipeline operations. On a stand-alone basis, the pipeline system has the profile of a higher rated entity with moderate debt levels and solid, consistent earnings and cash flow. While TETLP competes with numerous existing and proposed pipelines, system expansions and enhancements will position the asset to receive increasing supply from growing production regions like the Marcellus shale, further strengthening its competitive position. As a subsidiary of SEC, however, the ratings of TETLP remain linked to that of its parent. TETLP continues to be functionally operated as a single integrated business unit within SEC. TETLP and other U.S. operating companies will also remain reliant on the parent company's pooled credit facilities at SEC for any short-term liquidity needs. Fitch affirms the following ratings with a Stable Outlook: Spectra Energy Capital, LLC --Issuer Default Rating (IDR) at 'BBB'; --Senior unsecured debt at 'BBB'; --Short-term IDR at 'F2'; --Commercial paper at 'F2'. Texas Eastern Transmission, LP --IDR at 'BBB+'; --Senior unsecured debt at 'BBB+'. Link this Share this Digg this Email Reprints

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