Fitch Downgrades ONEOK Partners to 'BBB'; Outlook Stable.

NEW YORK -- Fitch has downgraded the senior unsecured debt rating and Issuer Default Rating (IDR) for ONEOK Partners, L.P. (OKS) to 'BBB' from 'BBB+'. In addition, Fitch affirms the 'A-' senior unsecured debt rating and IDR for Northern Border Pipeline Co. (NBPL), which is owned by OKS and TC PipeLines, LP in equal 50% interests. The Rating Outlooks are Stable. The ratings of OKS and NBPL have been removed from Rating Watch Negative, where they were placed on Feb. 15, 2006. OKS was placed on Negative Watch following the announcement that ONEOK Inc., then 82.5% general partner for OKS, would be dropping down its natural gas midstream and liquids businesses to OKS in a transaction valued at $3 billion and would be instituting ownership changes at OKS and NBPL. The transactions were completed on April 6, 2006. E[acute accent]The one-notch downgrade for OKS primarily reflects increased risk associated with its post-dropdown business mix, reflecting heightened commodity price exposure. Also considered is a more aggressive growth strategy and related event risk, which has been confirmed in recent weeks with the announced development of the Overland Pass liquids pipeline and OKS' purchase of the remaining portion of Guardian Pipeline. As a result of these and other expenditures, Fitch expects OKS' Debt-to-EBITDA to be high for the rating category over the near term until the projects begin generating operating cash flow. E[acute accent]On balance, Fitch now views OKS' blended business risk as moderate or near average for comparable investment grade master limited partnerships (MLPs). However, the dropdown has provided some clear benefits through the increased scale and diversity of its assets by type and region. OKS, unlike many midstream companies, has no material assets sited in the Gulf region, off-shore or on-shore, subject to serious hurricane risk. Price risk is somewhat mitigated since OKS is long natural gas liquids (NGLs) and short natural gas. In addition, ongoing efforts in contract reform should continue to reduce commodity price exposure. E[acute accent]Nearly 70% of OKS margin is expected to be generated from fee-based operations. Of that amount the economic split is relatively even between non-volume sensitive natural gas pipelines and volume sensitive NGL pipelines and gathering and processing services. Given the anticipated level of drilling activity for NGL-rich natural gas in regions OKS operates in and certain limiting competitive factors, Fitch does not view near-term volume risk as material. The remainder of OKS' business is commodity price sensitive, including the value of NGLs held in storage and natural gas gathering and processing services under percentage of proceeds and higher-risk keep-whole arrangements. To lessen earnings volatility, a portion of the gathering and processing associated commodity price risk, including nearly 50% of the near-term keep-whole exposure, is hedged through financial instruments. Fitch sensitivity analysis primarily based on commodity price information provided by the company in its public disclosures indicates that credit ratios would move to the lower range for the rating category in a reasonably weak commodity price environment. E[acute accent]In recent weeks OKS has announced major expansion projects. It has formed a joint venture (JV) with Williams Cos. to build the Overland Pass 750-mile NGL pipeline from Opal, Wyoming to Conway, Kansas. OKS will initially own 99% of the JV with Williams owning 1%. The estimated cost to construct the pipeline is $450 million and expenditures to expand associated fractionation capabilities will add an additional $160 million. Williams, which will dedicate NGL production to the JV, has the option to increase its ownership up to 50%, which if exercised would result in OKS receiving proceeds it could use to deleverage. In addition, in May 2006 OKS purchased the remaining two-thirds of Guardian Pipeline, L.L.C. for $77 million and has announced plans to expand the system for an incremental $220 million-250 million. Given its aggressive expansion and financing plans, including repayment by April 2007 of a $1.05 billion bank bridge financing facility, OKS has above-average capital market and interest rate risk. E[acute accent]The rating affirmation for NBPL reflects the generally low-risk characteristics of the interstate pipeline, the 50/50 joint ownership structure, which should provide long-term operating benefits to the system and lessen credit exposure to OKS and anticipated stable credit measures. In its rating analysis Fitch considered the issue of unsold capacity on portions of the NBPL system that first occurred in the spring of 2005 and has continued similarly in 2006. Entering 2006 approximately one-third of capacity was not committed under firm long-term contracts. In response NBPL has discounted transportation rates and sold daily firm capacity and capacity on an interruptible basis and increased market access to Chicago. As a result, throughout the period capacity utilization has remained strong and the financial impact appears manageable. Other important credit issues involve the resolution of NBPL's pending FERC rate case and longer-term trends for natural gas supply and demand in North America, including the use of natural gas for development of oil sand reserves in Western Canada and the building of new competitive interstate pipelines. E[acute accent]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.