Fitch Rates Columbia Pipeline's Commercial Paper 'F3'
Fitch currently rates CPGX's long-term IDR and senior unsecured debt at 'BBB-'. The Rating Outlook is Stable.
KEY RATING DRIVERS
CPGX's '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 CPGX in a balanced manner. The rating is also supported by plans to partially fund significant spending via the company's master limited partnership (MLP), which would raise equity in exchange for acquiring additional interests in the operating company, CPG OpCo LP.
NiSource Inc. spun off CPGX to its shareholders on July 1, 2015. Through wholly owned subsidiaries, CPGX owns 84.3% of CPG OpCo LP which holds all of the company's midstream assets. Over time, Columbia Pipeline Partners LP (CPPL) is expected to purchase additional interests in this operating company. In addition, CPGX currently owns 46.5% of CPPL, the MLP that NiSource IPO'd in February 2015. CPGX 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. CPGX sees growth capex in the range of \\$12 billion to \\$15 billion over the next 10 years. CPGX'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 CPGX's and CPPL's reliance on capital markets to fund growth over the next few years.
Well-Positioned Assets: CPGX'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: CPGX is moving forward on its Rayne/Leach XPress pipeline project which is estimated to cost approximately \\$1.8 billion. It is projected to be in service in late 2017. The Mountaineer XPress and Gulf XPress pipelines are under development and have been accepted by the FERC for prefiling review. These projects are expected to cost \\$2.7 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 being placed into service.
Leverage: Fitch expects pro forma leverage to be approximately 5.0x at the end of 2015. This forecast considers CPGX'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 4.3x - 4.8x.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for CPGX 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 CPGX 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 leverage fall below 4.5x over a sustained period of time while CPGX is able to maintain a high level of cash flow stability, 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 to the equity markets which would cause CPGX to become more dependent on debt to fund growth, resulting in higher leverage;
--Significant reliance on subordinated cash flows from CPPL to service CPGX's debt;
--Increased leverage beyond 5.0x for a sustained period of time.
LIQUIDITY
As of June 30, 2015, CPGX's had \\$137 million of cash on the balance sheet. The company has a \\$1.5 billion revolver which became effective July 1, 2015. The bank facility extends through July 2020. Management expects that half of the revolver will be used to support CPG OpCo LP and its affiliates while the remaining \\$750 million is to be used for CPGX's general corporate purposes. The bank agreement has one financial covenant for maximum leverage, which cannot exceed 5.75x through year-end 2015. Between first-quarter 2016 and fourth-quarter 2017 leverage cannot exceed 5.5x; thereafter, it cannot exceed 5.0x. With permitted acquisitions, leverage cannot exceed 5.5x for two consecutive quarters.
CPPL's \\$500 million revolver is guaranteed by CPGX, CPG OpCo LP, Columbia Energy Group, and CPG OpCo GP LLC. It has a financial covenant for leverage which mirrors CPGX's. This revolver has commitments through February 2020.
CPGX 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 CPGX will generate credit ratios which provide it with sufficient covenant cushion for the bank agreement. Fitch expects the CP program to be used to support any near-term liquidity needs and to be back stopped by revolver capacity.
FULL LIST OF RATING ACTIONS
Columbia Pipeline Group, Inc.
--Short-term IDR and CP assigned at 'F3'.
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