Fitch Ratings Affirms Southern Union At 'BBB'; Rating Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 13, 2003

Southern Union Co.'s (SUG) outstanding debt securities are affirmed by Fitch Ratings as follows: senior unsecured notes at 'BBB'; trust originated preferred securities at 'BBB-'; and first mortgage bonds at 'BBB+'. The ratings are removed from Rating Watch Negative where they were placed on Dec. 24, 2002. The Rating Outlook is Stable.

The rating action follows Fitch's review of SUG's pending acquisition of the CMS Panhandle Companies (PEPL; 'BB' senior unsecured, Rating Watch Positive by Fitch) in a transaction valued at $1.86 billion, including the assumption of $1.2 billion of PEPL debt. Transaction execution risk is limited as the vast majority of the $662 million cash portion will be funded with cash proceeds received from SUG's recent sale of its Texas gas utility division and a $150 million non-voting preferred stock investment by AIG Highstar. In exchange for its preferred stock investment, AIG will be entitled to a 22.11% participating dividend in PEPL's operating earnings.

The affirmation of SUG's ratings reflects the added cash flow predictability provided by the PEPL acquisition and the expectation that consolidated credit measures will remain consistent with SUG's current rating category following completion of the company's permanent financing plan. Primary assets subject to the purchase agreement include two FERC regulated interstate gas pipeline systems and the Trunkline LNG terminal complex located in Lake Charles, LA. These assets continue to demonstrate a favorable track record of operating in the competitive U.S. Midwest region and have historically generated a consistent cash flow stream. Importantly, the expected cash dividends from PEPL will offset reduced earnings and cash flow at the SUG corporate level resulting from the sale of the Texas utility division. Although such dividends are subordinated to the debt obligations of PEPL, the various dividend restrictions embedded in PEPL's indenture are not overly restrictive.

SUG's consolidated debt leverage and key credit protections measures will moderately weaken following the acquisition primarily as a result of initial borrowings to fund the cash portion and the assumption of outstanding PEPL debt. SUG's near-term plans to reduce leverage include the issuance of new common equity and the potential sale of certain non-core PEPL assets. As a result, credit measures should strengthen to levels consistent with the SUG's ratings with total debt to capital stabilizing in the mid-55% range and EBITDA interest coverage exceeding 3.0 times (x). Fitch will consider revising its current Rating Outlook and/or ratings for SUG dependent upon the company's ability to execute its permanent financing plan.

PEPL's current 'BB' rating remains on Rating Watch Positive reflecting the higher rating of SUG as compared with that of current 100% owner CMS Energy (CMS, senior unsecured rated 'B+', Rating Watch Negative). It also incorporates Fitch's understanding that SUG and AIG Highstar do not intend to leverage PEPL on a standalone basis in order to execute the acquisition. Fitch expects to raise PEPL's senior unsecured debt rating to 'BBB' when the acquisition closes.