Moody’s Investors Service last week confirmed Florida Gas Transmission’s (FGT) Baa2 senior unsecured ratings affecting approximately $725 million of debt securities. Moody’s also changed the outlook to stable from negative.

The ratings agency said FGT’s parent company, Citrus Corp., which is 50% owned by Enron, is expected to be insulated from the Enron bankruptcy proceedings because FGT always has been operated and financed separately from its owners, and its ratings reflect its standalone credit quality. El Paso Corp.(Baa2 senior unsecured) is the other 50% owner. El PAso holds half the seats on the board of directors, and has to approve any significant business decision.

Also “There is a possibility that Enron’s 50% stake in Citrus may be sold or transferred in the near future to another party.” El Paso also has the right of first refusal on the sale of Enron’s share.

Moody’s noted “a high level of predictability of its revenues” from regulated operations and its strong market position as the dominant long line delivering into Florida, where “there are internal growth opportunities.” While FGT delivers 96% of the gas consumed in Florida under long-term firm contracts, the new Gulfstream pipeline into the state also poses competition when the contracts expire.

FGT’s leverage and coverages are about average for a regulated pipeline, Moody’s said, noting that for fiscal 2001, it had a debt-to-capital ratio of 47%.

On the downside are “the uncertainty as to the ownership of Enron’s 50% stake, the potential for future debt-financed expansions that may suppress an improvement in its credit measures, customer concentration, and the prospect of increased competition over the next few years.”

However, investors are protected by covenants in the debt agreements of FGT and Citrus that limit debt and intercompany transactions and restrict the company’s ability to make loans to its owners. The company’s leverage is limited to 65%, which restricts the amount of dividends it can pay.

Most of FGT’s revenues comes from reservation fees on long-term contracts, which minimizes the volume risk. The long-term contracts, averaging 10 years, mostly with credit-worthy Florida utilities, will recover the cost of all its capacity. However, Moody’s notes “there is shipper concentration with FP&L (A1 issuer) and Peoples Gas System (a subsidiary of TECO, rated A3 senior unsecured) together accounting for two-thirds of contracted capacity.

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