OREANDA-NEWS. Fitch Ratings has assigned Columbia Pipeline Group, Inc. (CPG) an initial Issuer Default Rating (IDR) of 'BBB-'. Fitch expects to assign a 'BBB-' to CPG's planned senior unsecured debt offering of \$2.75 billion.

The Rating Outlook is Stable.

KEY RATINGS DRIVERS

The 'BBB-' rating is supported by the company's well-positioned pipeline network, Columbia Transmission Company, LLC, and multi-year fee-based arrangements which will provide steady cash flows. Other factors include expectations for sufficient liquidity and management's intention to fund growth at CPG in a balanced manner. The rating is also supported by plans to partially fund significant spending via the company's MLP, which would raise equity in exchange for acquiring additional interests in the operating company, CPG OpCo LP.

NiSource Inc. (NiSource; IDR 'BBB-'/Stable Outlook) remains on track to spin-off CPG to shareholders on July 1, 2015. Through wholly owned subsidiaries, CPG owns 84.3% of CPG OpCo LP which holds all of NiSource's midstream assets. Over time, Columbia Pipeline Partners LP (CPPL) will purchase additional interests in this operating company. In addition, CPG currently owns 46.5% of CPPL, the MLP that NiSource IPO'd in February 2015. CPG also owns the general partner of the MLP, all of the MLP's subordinated units and the incentive distribution rights.

Concerns include significant spending plans for large new projects. CPG sees growth capex in the range of \$12 to \$15 billion over the next 10 years. CPG's development of such projects will not occur until it has received sufficient agreements for long-term fee-based contracts. The company's strategy is to fund spending in a manner which would not strain the balance sheet. Additional concerns include CPG's and CPPL's reliance on capital markets to fund growth over the next few years.

Well Positioned Assets: CPG's significant asset is ownership in Columbia Gas Transmission, LLC which is a 12,000 mile pipeline network which moves gas from the Marcellus and Utica to the Midwest, Mid-Atlantic, and the Northeast. It also has significant natural gas storage. Other assets include Columbia Gulf Transmission, LLC, gathering and processing assets and interests in other midstream assets.

Significant Projects: CPG is moving forward on its Rayne/Leach XPress pipeline project which is estimated to cost approximately \$1.8 billion. It is forecasted to be in service in late 2017. The Mountaineer XPress and Gulf XPress pipelines are under development and expected to move forward. These projects are expected to cost \$2.6 billion. Like Rayne/Leach, the company expects this to be backed by long-term capacity reservation contracts which would provide stable cash flows for years after placed into service.

Liquidity: CPG's \$1.5 billion revolver becomes effective with the spin-off from NiSource and matures five years from the effective date. There are three guarantors for the borrower, CPG: CPG OpCo LP, Columbia Energy Group, and CPG OpCo GP LLC. The bank agreement has two material financial covenants which include maximum leverage which cannot exceed 5.75x through yearend 2015. Between 1Q'16 and 4Q'17, leverage cannot exceed 5.5x. Thereafter, it cannot exceed 5.0x. With permitted acquisitions, leverage cannot exceed 5.5x for two consecutive quarters. The second financial covenant requires a minimum interest coverage ratio of 3.0x. This requirement falls away if CPG attains investment grade ratings.

CPPL's \$500 million revolver is guaranteed by NiSource, CPG, CPG OpCo LP, Columbia Energy Group, and CPG OpCo GP LLC. NiSource is a guarantor on CPPL's revolver until the spin-off occurs or CPG has ratings from rating agencies. The two financial covenants for CPPL mirror CPG's. This revolver has commitments through February 2020.

CPG and CPPL have similar bank agreements. Financial calculations for both are from CPG OpCo LP. The calculation for Consolidated CPG OpCo LP EBITDA gives pro forma credit for material projects. Pro forma credit is also given for permitted acquisitions and asset sales by CPG OpCo LP in excess of \$100 million for the most recent four consecutive quarters.

Fitch forecasts that CPG will generate credit ratios which provide it with sufficient covenant cushion for the bank agreement.

Leverage: Fitch expects pro forma adjusted leverage to be approximately 5.0x at the end of 2015. This forecast considers CPG's plans for pro forma capex of approximately \$1.1 billion during the year. Longer term, Fitch expects adjusted leverage to be in the range of 4.3 - 4.8x.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:
--EBITDA growth in the mid to upper teens over the next several years;
--Dividend growth fairly in line with EBITDA increases on a percentage basis;
--Additional purchases of CPG OpCo LP by CPPL provide CPG with significant funding for its large growth capex plans;
--In addition to funding from additional CPG OpCo LP purchases by CPPL, proceeds from debt and equity issuances will be used in a balanced manner to protect the balance sheet.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Significant leverage reduction. Should adjusted leverage fall below 4.5x over a sustained period of time, Fitch may take positive rating action.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Restricted liquidity;
--Significant increases in capex or acquisitions not funded in a balanced way;
--Lack of access the equity markets which would cause CPG to become more dependent on debt to fund growth resulting in higher leverage;
--Significant reliance on subordinated cash flows from CPPL to service CPG's debt;
--Increased adjusted leverage beyond 5.0x for a sustained period of time.