2008-07-10 23:40:14 -
- Fitch Ratings has affirmed the Issuer Default Rating (IDR) and outstanding ratings for AGL Resources Inc. (AGL) and its two debt issuing subsidiaries Atlanta Gas Light Co. (AGLC) and AGL Capital Corp., as listed below. The Rating Outlook is Stable. Approximately $1.47 billion of outstanding long-term debt is affected.
AGL Resources Inc.
--IDR 'A-'.
AGL Capital Corp. (Guaranteed by AGL)
--IDR 'A-';
--Senior notes 'A-';
--Short-term IDR 'F2';
--Commercial paper 'F2'.
Atlanta Gas Light Co.
--IDR 'A-';
--Medium-term notes 'A'.
AGL's rating and Stable Outlook reflects the low business risk of its core regulated gas distribution business, management's
favorable track record of operating and investing in a growing portfolio of non-regulated businesses and the strength and stability of its financial profile. AGL's utility operations are supported by beneficial rate design and generally favorable service territory demographics, although customer growth at AGLC has recently slowed measurably due to weakened local economic conditions and competitive pressures. As a pure energy delivery company, AGLC operates under volume-insensitive straight-fixed variable rates. In addition, the adoption of weather-normalized rates and partial rate decoupling for Virginia Natural Gas, Inc. (VNG) and Elizabethtown Gas Co. contributes further to operating stability.
AGL's non-utility businesses are primarily focused in three areas: retail gas marketing through SouthStar Energy Services LLC (SouthStar); wholesale gas services through Sequent Energy Management, L.P. (Sequent); and investments in high-deliverability natural gas storage and telecommunication networks. Fitch recognizes the earnings volatility that normally occurs in Sequent's wholesale business from changes in the fair value of the derivative instruments it uses to hedge its physical positions. The company today announced that due to the continued increase in natural gas prices and widening of transportation basis spreads that 2008 second quarter earnings will be lower than the prior-year quarter.
AGL has begun development of two large projects with a third waiting for regulatory approval to start. Hampton Roads Crossing is a pipeline that will connect the southern and northern portions of VNG's distribution system and construction is scheduled for completion in late 2009. In addition, AGL has recently begun construction on the first phase of the Golden Triangle Storage salt dome facility in Beaumont, Texas. The plan is to complete the facility in stages from 2010 - 2013. Phase one will have capacity of 12 billion cubic feet (bcf) and the entire completed facility would have a full working capacity of 30 bcf. The Magnolia project is expected to provide AGL supply diversity with access to the Southern Natural Gas' Elba Island LNG import facility through its purchase of certain connecting pipelines at a cost of $45 - $50 million. Firm pipeline capacity will be held by AGLC's marketers. FERC approval of the project is expected this summer.
While the economic value of non-regulated operations has remained relatively consistent from year to year, AGL has experienced some volatility in its reported results due to the use of mark to market accounting for Sequent's hedging and gas storage activities. Consolidated credit measures including debt leverage are consistent with AGL's 'A-' IDR. At March 31, 2008, AGL's consolidated funds from operation interest coverage was 4.0 times (x) and debt to EBITDA was 3.1x. AGL initiated a common share buyback program in 2006. However, with significant investment commitments in 2008 and 2009, further share repurchases are not expected over the next several years.
AGLC's rating incorporates its low business risk offset by its strong financial ties with AGL, including AGL's reliance on upstream cash flows from AGLC to service holding company level debt. Affiliated companies including AGLC participate in a corporate money pool arrangement at AGL. Furthermore, the Georgia regulatory framework does not provide strong ring-fencing to limit AGLC's ability to make upstream distributions.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings, New York
Ralph Pellecchia, 212-908-0586
Peter Molica, 212-908-0288
or
Media Relations:
Brian Bertsch, 212-908-0549
