Fitch Affirms Laclede Group & Laclede Gas IDRs; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed the ratings for Laclede Group Inc. (LGI) and its primary subsidiary, Laclede Gas Co. (LGC), as follows:

LGI

--Issuer Default Rating (IDR) at 'A-'.

LGC

--Issuer Default Rating (IDR) at 'A';

--Senior secured debt at 'A+'.

The Rating Outlook for both companies is Stable. Approximately $396 million of debt is affected. Fitch also has affirmed the 'BBB+' rating of the trust preferred securities issued by Laclede Capital Trust I.

The ratings for LGI take into consideration the low risk nature of the company's regulated gas distribution business, LGC, which currently accounts for approximately 70% of consolidated operating income. LGC benefits from a stable customer base, low business risk profile and strong operating profile, including access to a diverse supply of natural gas and around 29 billion cubic feet (Bcf) of storage capacity. LGI's non-regulated activities, which primarily consist of an underground locating and marking service company and natural gas marketing operations, also have relatively low business risk characteristics. LGI's marketing segment provides wholesale and retail services, and is prohibited from engaging in speculative market activities. The non-regulated businesses are cash flow positive and do not require significant capital requirements. Rating concerns facing LGC primarily relate to the gas company's pending rate case in Missouri (see below for additional information), a somewhat challenging regulatory environment and the risk of hindsight prudency reviews.

Consolidated credit metrics for LGI are consistent with the 'A-' rating category. The ratios of EBITDA to interest and funds flow coverage were 3.7 times (x) and 4.2x, respectively, for fiscal year ended Sept. 30, 2006. Leverage, as measured by the ratio of debt to EBITDA, is moderately high for the rating at 4.5x for the same period due to elevated levels of seasonal short-term debt. Credit metrics are forecasted by Fitch to remain at or near current levels over the next several years, while short-term debt levels will continue to be affected by natural gas prices.

On May 4, 2007 the Staff of the Missouri Public Service Commission (MPSC) filed testimony recommending that LGC receive a rate increase in the range of $12.4 million to $18.2 million. This range is premised upon an 8.2%-to-9.2% return on equity (ROE). In Dec. 2006, LGC filed for a $52.9 million overall gas rate increase premised on an 11.75% ROE. The requested increase consisted of a $44.9 million base rate increase and a $9.8 million increase in the purchased gas adjustment (PGA) clause to reflect the gas cost portion of bad debt expense, and a $1.8 million reduction in the infrastructure system replacement surcharge to reflect base rate recovery of these costs. LGC also requested enhancements to its Weather Mitigation Rate Design as a gas decoupling mechanism. These mechanisms, which essentially provide for recovery of distribution margin through the customer charge and/or first block sales rates, have been approved for other utilities in the State. Absent a settlement agreement, a final MPSC order is expected in October 2007.

The Stable Rating Outlook for LGI and LGC take into account Fitch's expectation that the companies will continue to benefit from the stable operating profile of its natural gas distribution business, moderate levels of unregulated operations, and a reasonable outcome in LGC's pending rate case. An adverse regulatory outcome or increased growth in the non-regulated businesses, without a commensurate improvement in credit ratios, would place downward pressure on the ratings.

LGI is a utility holding company whose primary subsidiary is LGC, a natural gas local distribution company in Missouri, which serves more than 630,000 customers in St. Louis and surrounding metropolitan areas. LGI's non-regulated activities include an underground locating and marking service company, and natural gas marketing operations.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.