Following Moody’s Investors Service’s announcement that it was placing the credit ratings of NiSource Inc. and its subsidiaries under review for possible downgrade, NiSource CEO Gary L. Neale fired back with a release expressing his disappointment at the action.

Despite Neale’s displeasure, he noted that he remains confident that Merrillville, IN-based NiSource would be able to demonstrate to Moody’s that the company’s continuing actions to reduce debt warrant an investment grade rating.

In his defense of the company, Neale added that NiSource has very strong cash flow and current liquidity of approximately $775 million. He said that in the event a downgrade were to happen, collateral calls resulting from ratings triggers would be limited to $275 million and no default would be created under any of NiSource’s loan agreements.

“NiSource has been working with Moody’s, reviewing different options to reduce debt leverage,” he said. “The company has reduced its debt by almost $2 billion over the last 15 months and also reduced its business risk profile by selling non-core, unregulated assets and has, for example, exited the gas trading business.” Arguing that his company deserves an investment grade rating, Neale noted that NiSource compares “favorably” to its peers in many respects.

Moody’s pointed out that while the company’s on-balance sheet debt and redeemable preferred stock, NI’s leverage was roughly 61%, its debt ratio in 2002 including off-balance sheet items was over 90%. Retained cash flow-to-adjusted debt was 9%.

Moody’s said the review was prompted by NiSource’s still high financial leverage. While noting that the company has recently reduced a significant amount of debt and improved its coverages, Moody’s said it is “concerned that the company’s recent and ongoing initiatives to de-leverage its balance sheet may not be sufficient to retain a financial position that is commensurate with investment grade ratings.

“NI’s debt levels remain stubbornly high,” the ratings agency said. “On-balance sheet debt is in the $6 billion range, but its full debt burden would be in the $7 billion range, adjusting to include obligations under gas prepay transactions, operating leases, hybrid securities, receivables sales, and preferred stock.”

NiSource’s proposed sale of Columbia Energy Resources (CEG), the E&P arm of the the Columbia Group, may not net all that much since CEG’s debt includes long-term gas prepay contracts, with an outstanding balance of $260 million. “If the sale of CEG is successfully negotiated, it remains to be seen not only how much net cash proceeds would be generated for debt reduction, but also how CEG’s prepay contracts would be disposed of.”

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.