After completing its review of Oneok's $1.35 billion purchase of Koch's natural gas liquids (NGL) assets, Moody's Investors Service downgraded the ratings of Oneok's debt to Baa2 from Baa1. Moody's said that $2 billion of debt securities are affected. The rating outlook is stable.
"Oneok's credit metrics will decline to levels outside the ranges accommodated by our previous ratings and will not be sufficiently mitigated by the reduction in business risk from the recent sale of its E&P (Production) unit," said John Diaz, managing director of Moody's corporate finance group. "While we believe that the metrics can recover in the intermediate term, our decision to lower the ratings focuses on the company's continuing strategy of acquiring and selling assets that expose debtholders to ongoing event risk."
Moody's said it believes that the Baa2 ratings will better accommodate a range of merger and acquisition activity that can be reasonably conceived in the foreseeable future, based on Oneok's current strategic focus and track record.
"In our view, Oneok is more transaction-oriented than many of its peers," Moody's said. "The higher-than-average potential for transforming M&A activity reduces the certainty in the company's financial outlook much beyond a near-term horizon and causes us to restrain our ratings. While Oneok's recent interest has been to grow its midstream business, its strategic focus over the past eight years has shifted every few years to a degree that has affected its credit quality. The company is as willing to sell assets as to acquire them. Such divestments could be some or all of a business segment, as demonstrated by the recent $500 million after-tax sale of its production segment, which helps to permanently finance the Koch acquisition."
Headquartered in Tulsa, OK, Oneok distributes natural gas to more than two million customers in Oklahoma, Kansas and Texas. The company is also involved in the gathering, processing, storage and transportation of natural gas in the mid-continent region of the U.S. Oneok's NGL system connects much of the NGL supply in the mid-continent with two key market centers.
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