Responding to the financial strength of Loews Corp., Texas Gas Transmission LLC’s (formerly Texas Gas Transmission Corp.) new parent company, Moody’s Investors Service upgraded the pipeline company’s senior unsecured credit rating to Baa1 from B3. It also assigned a first-time rating of Baa2 senior unsecured to its new immediate parent company, holding company TGT Pipeline LLC. The rating outlooks for both companies are stable.

A unit of Loews (A3 senior unsecured/negative outlook) last week closed its purchase of Texas Gas from The Williams Companies Inc. (Caa1 senior unsecured/negative outlook) for $795 million of cash plus the assumption of $250 million of its existing debt.

“Texas Gas’s former ratings reflected the weak financial condition of Williams, and the upgrade reflects the pipeline’s new ownership by Loews, a company with substantial capital resources and a track record as a long-term investor,” Moody’s said.

Moody’s said the stable outlook on the pipeline company is based on its steady and relatively predictable cash flows, manageable debt levels and experienced management team. “However, these strengths are mitigated by: 1) debt protection measures that will weaken as a result of the acquisition plan; 2) potential for competition from other pipelines, particularly at the Lebanon Hub terminus, which exposes Texas Gas to potentially lower rates and less favorable contract terms; 3) concentration of 30% of its revenues in two customers; 4) relative maturity of its markets that results in steady but slow internal growth; 5) relatively moderate size and scope compared to other pipelines; and 6) a yet-to-be-established track record as a standalone entity under Loews’ ownership.”

Loews will finance the $795 million cash consideration with $530 million of its own cash, and the balance will be financed by new senior unsecured notes at both the operating company and holding company levels. The holding company will issue $185 million of notes and the operating company will issue $250 million. Some of the proceeds will be used in the tender for the $150 million of the holding company’s existing 8.625% notes due 2004. These financings are expected to eliminate refinancing risk for over a decade.

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