KeySpan's Equity Unit Attached Notes Rated 'A-' By Fitch Ratings.
NEW YORK--(BUSINESS WIRE)--May 1, 2002
Fitch Ratings has assigned an 'A-' rating to the senior notes embedded in the $400 million equity units to be issued by KeySpan Corp. (KeySpan). The equity units consist of senior notes due 2008 issued by KeySpan having an initial interest rate of 4.90% and a purchase contract requiring the holder to buy KeySpan common stock on May 16, 2005. KeySpan will make fixed quarterly payments on the purchase contract (contract adjustment payments) and on the senior notes, which rank pari passu with other senior unsecured debt of KeySpan Corp. Proceeds from the issuance will be used to reduce short-term debt outstanding. The Rating Outlook is Stable.
The senior notes will serve as collateral to secure the equity unit holders' obligation to purchase common stock under the purchase obligation. The notes are subject to remarketing in 2005 and will remain outstanding until their maturity in 2008. The interest rate on the notes will be reset at remarketing. The equity units have equity-like characteristics, including, a secured commitment from investors for the forward purchase of stock at fixed exchange ratios with a floor equity price. The return to investors will in part depend on the value of the KeySpan common stock at the contract settlement date. The rating does not comment on the expected performance of the common equity of KeySpan.
KeySpan's credit quality is primarily supported by the solid financial positions and low business risk profiles of its regulated gas distribution utility subsidiaries, including, KeySpan Energy Delivery New York, KeySpan Energy Delivery Long Island, Boston Gas Co., Colonial Gas Co., Essex Gas Co., and EnergyNorth Natural Gas. The combined utility operations serve 2.5 million customers and should provide nearly 60% of 2002 consolidated operating income. The second largest contributor to earnings and cash flow is the electric services segment. KeySpan Generation LLC owns and operates the 4,000 megawatt former fossil-fuel electric generation units of Long Island Lighting Co. (LILCO) and sells power and provides services under long-term contract to 'A-' Long Island Power Authority. In addition, KeySpan operates the 2,200 megawatt Ravenswood electric generation plant located in New York City. A third business segment provides energy-related services to residential and commercial customers in the Northeast. KeySpa n also has energy investments that are not core to operations, including its gas exploration and production and midstream operations.
Of moderate concern is high consolidated company debt leverage and the less predictable performance from its energy investments and the non-regulated energy services segment. KeySpan issued approximately $2.2 billion of parent company debt to complete its November 2000 acquisitions of Eastern Enterprises and EnergyNorth. The company's financing strategy has been to sell non-core assets over time and to use the proceeds to reduce debt. At March 31, 2002, consolidated debt to capitalization was about 65%. Agreement has been reached to sell Midland Enterprises, Inc., KeySpan's water barge subsidiary, for $230 million of cash and the assumption of $135 million of debt. In addition, the potential sale/monetization of other energy investments could substantially reduce parent company debt and, if completed in 2002, should result in consolidated debt leverage of about 55%.
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|Date:||May 1, 2002|
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