Following similar action taken by Moody’s Investors Service earlier in the week, Standard & Poor’s Ratings Services (S&P) said Thursday it is lowering its corporate credit rating on Peoples Energy Corp. to “A-” from “A+” with a current outlook of stable. The agency noted that Chicago-based Peoples Energy has about $946 million in outstanding debt. In addition, S&P lowered the corporate credit rating on Peoples Energy’s Peoples Gas Light & Coke Co. subsidiary to “A-” from “AA-“.

“The corporate credit rating for Peoples Energy Corp. reflects the above average financial and business risk profiles of the consolidated entity, consisting of two regulated gas distribution subsidiaries, Peoples Gas Light & Coke Co. and the much smaller North Shore Gas Co., and nonregulated businesses,” said S&P in its note.

S&P said it is concerned over increasing business risk with the growing share of nonregulated businesses — oil and gas production, midstream services, power generation, and retail energy services — as well as bond protection measures that have slipped in recent years. The credit rating agency said the nonregulated business segment gets the lion share of projected capital spending over the next few years, about 60% of the total. Because of this, S&P weighed the risk associated with the nonregulated businesses at a level higher than its current share of earnings. Despite the higher risk inherent in these businesses, the agency said management’s financing strategy is expected to be moderate, with the use of nonrecourse project debt and asset-secured financing.

S&P said Peoples has avoided serious risk taking and appears to have prudent risk-management procedures in place. It also considers the company’s liquidity to be adequate. The current stable outlook for Peoples Energy “recognizes a stable and predictable cash contribution by the regulated utilities with diverse gas supply and a favorable competitive position,” S&P said. “Upside credit potential is limited by the higher risk inherent in the company’s diversification program and increased leverage.”

On Monday, Moody’s cited concerns about increased leverage and business risk associated with Peoples Energy’s diversification strategy as reason for its downgrade (see Daily GPI, Sept. 24). The agency reduced Peoples rating and the long-term ratings of the securities issued by its two utility subsidiaries. Moody’s added that the rating outlooks are negative.

Moody’s made the following changes:

Moody’s said the utilities’ short-term ratings were not currently under review.

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