Standard & Poor’s Ratings Services (S&P) Thursday lowered its corporate rating and senior unsecured rating on Houston-based pipeline company NGPL PipeCo LLC to ‘BB-‘ from ‘BB+’ and placed the ratings on CreditWatch with negative implication. S&P also lowered the rating on NGPL’s senior unsecured notes to ‘BB-‘ from ‘BB+’ and placed the ratings on CreditWatch. The ratings downgrade impacts NGPL’s $3 billion of reported debt.

The S&P downgrade comes nearly a week after Moody’s Investors Service placed NGPL PipeCo (Baa2 corporate family rating) ratings under review for possible downgrade, citing the “severe” revenue drop reported by the company in September. NGPL PipeCo, which owns the Natural Gas Pipeline Company of America, is 20% owned by Kinder Morgan Inc. and 80% owned by Myria Acquisition LLC.

“We [S&P] based the ratings downgrade and CreditWatch placement on NGPL’s weakened cash flow profile, which is due to lower transportation volumes and rates on portions of its system,” said S&P credit analyst William Ferara. “We expect this environment to persist over the next couple of years and negatively affect NGPL due to excess Midcontinent gas supplies and limited basis spread opportunities.

“NGPL also faces refinancing risk with a $1.25 billion debt maturity due in December 2012, and has minimal cushion on its financial covenant under its revolving credit facility. We expect NGPL’s owners to determine a refinancing plan to the December 2012 debt maturity in the first quarter of 2012. We expect to resolve the CreditWatch listing in the first quarter of 2012; [and] continued weakening could result in [another] downgrade.”

Moody’s said its action “reflects the potential that weak conditions in the Midwest gas market are weighing more on NGPL’s financial performance than previously anticipated.

“NGPL’s financial results are likely to remain depressed for some time since increased competition among pipelines and overcapacity in the region are expected to persist for several years. NGPL is particularly vulnerable to such market conditions because of its high leverage and the short [terms] of its transportation contracts (about two years) that reset to reflect prevailing rates when they are renewed. Meanwhile operating costs, in particular pipeline integrity spending, are on the rise and will reduce cash flow,” Moody’s said.

“The severe drop in NGPL’s revenues in the…quarter [ended in September] exceeded our estimates, and if revenues stay at this level, the company will not be able to sustain the range of credit metrics that we would expect for its current rating,” said Moody’s Vice President Mihoko Manabe. The outlook for NGPL would be stabilized, however, if its turns out that the third quarter financial results reported in September were an “anomaly,” and cash flow returns to a sufficient level and near-term liquidity issues are resolve, Moody’s said.

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