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S&P: Pipe Remediation Concern Weakens Boardwalk Outlook

Citing the company's work on correcting anomalies on its new large-diameter Gulf Crossing Pipeline before it went into service in late June, Standard & Poor's Ratings Services (S&P) revised its outlook on Boardwalk Pipeline Partners LP to "negative" from "stable" and affirmed its "BBB" corporate credit rating.

"The rating action reflects concerns about increasing business and financial risk at Boardwalk," S&P said. "This is most notable due to lower expected cash flows in 2009 as the company remediates sections of its expansion pipelines, the uncertainty of the ultimate cost, and the timing the remediation work will be complete and Boardwalk will receive approval by the Pipeline and Hazardous Materials Safety Administration to operate its pipelines at higher pressures."

Late in June Boardwalk said its 356-mile Gulf Crossing Pipeline had completed remediation of pipe anomalies and had been given the green light by the Department of Transportation to operate the pipeline at normal operating pressures of up to 72% of the specified minimum yield strength (see NGI, July 6).

"The company has indicated that it expects the total remediation cost to be within its budgeted contingency," S&P said. "While it is our view that the anomaly issues are essentially beyond Boardwalk's control, ongoing execution problems with its capital spending program raises its business risk profile, given the master limited partnership structure and the company's organic growth strategy, which require good execution. In our opinion, the ability to successfully complete large spending programs within budget and realize incremental cash flows without significant delays is an important ratings factor because it allows Boardwalk to maintain better liquidity, generate a higher cushion for equity distributions, and lowers long-term leverage."

Gulf Crossing, which will transport gas from supply regions in Texas and Oklahoma to the Perryville Hub in northeastern Louisiana will have 1.76 Bcf/d of capacity with the addition of compression.

As of March 31 Boardwalk had about $3.05 billion of debt, S&P said.

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