For those interested in the ratings game, this past week was nota good one for natural gas companies as Moody’s Investors Servicedowngraded one natural gas company and Standard & Poor’s puttwo others on CreditWatch with negative implications. All threeremain in the rarefied upper ranks by virtue of the guaranteedreturns that come with their utility operations. But it’s theirincreasing unregulated business that’s making the ratings agenciesnervous.
Standard & Poor’s placed its credit ratings for MCN EnergyGroup and two subsidiaries, including Michigan Consolidated Gas,and Questar Corp. and two utility subsidiaries on CreditWatch withnegative implications. In both cases, S&P’s announcements onThursday mentioned the increased risks of non regulated activities.
The utility MichCon suffered from the elimination ofpurchased-gas passthroughs and higher operating costs. And theratings agency is eyeing askance the parent company and subsidiary,MCN Investment Corp., because of the company’s “continuedcommitment to doubling its size in five years through higher-risk,non-regulated investments.” The parent’s corporate credit rating isA- while MichCon’s is A/A-1 and MCN Investment is BBB+/A-2.
Moody’s put MCN on review for possible downgrade at the end ofJune. The greatest impact on ratings for utility companies comesfrom diversification into unregulated areas and from “event risk”which is defined as the possibility of mergers or acquisitions,said Mihoko Manabe, Moody’s vice president and senior analyst. WithMCN event risk was the deciding factor, she added.
In the case of Questar and Questar Gas and Questar Pipeline,S&P affirmed the single-A/A-1 corporate credit rating of theparent and the single-A-plus corporate credit ratings of QuestarGas and Questar Pipeline based on the “stability of the regulatedgas distribution and interstate pipeline activities (about 55% ofconsolidated operations).” The cloud on the horizon is ascribed tothe potential negative influence of its oil and gas E&Pventures and gathering and processing.
Earlier in the week, Moody’s said it was downgrading the seniorunsecured debt ratings of Consolidated Natural Gas to A2 from A1because of the expectation of heightened risk since Consolidatedsaid it plans to increase its E&P spending substantially. Itparticularly noted that two-thirds of CNG’s production is offshoreGulf of Mexico, of which a significant portion is in the deepwater, which is higher risk (see GPI Daily Aug. 11& 13).Moody’s said also there were “significant acquisitions likely thatmay increase its business as well as its financial risk.”
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