Fitch Ratings has assigned Columbia Pipeline Group, Inc.'s (CPGX) $1
billion commercial paper (CP) an 'F3' rating. CPGX is the CP issuer and
the guarantors are CPG OpCo LP, Columbia Energy Group, and CPG OpCo GP
LLC. The three guarantors are subsidiaries that jointly and severally
guarantee the obligations. In addition, Fitch assigns CPGX a short-term
Issuer Default Rating (IDR) of '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'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991955
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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