Fitch Places AGL Resources on Rating Watch Positive.
NEW YORK--(BUSINESS WIRE)--Feb. 11, 2003
Fitch Ratings has placed the 'BBB+' senior unsecured debt ratings of AGL Resources, Inc. (AGLR) and its financing subsidiary AGL Capital Corp. (AGCC) on Rating Watch Positive. AGLR's short-term rating is affirmed at 'F2'. In addition, Atlanta Gas Light Co's (AGLC) outstanding unsecured medium-term notes are affirmed at 'A'. A complete list of securities impacted by today's action is provided below.
The Rating Watch Positive status for AGLR reflects the anticipated de-leveraging and improvement in consolidated coverage ratios resulting from AGLR's pending issuance of up to $150 million of new common equity, proceeds of which will be used to retire short-term debt. In addition, the rating action incorporates the low business risk profile of AGLR's core regulated gas distribution business and management's favorable track record of operating and investing in a modest sized portfolio of non-regulated businesses. Upon closing of the equity offering (anticipated by Feb. 14, 2003), Fitch expects to raise AGLR's senior unsecured debt rating to 'A-'.
Considerable credit strength is derived from AGLR's stable regulated gas distribution operations which serve more than 1.8 million customers throughout Georgia, southeastern Virginia, and a small portion of Tennessee. These operations represented approximately 90% of 2002 operating income. AGLC, AGLR's largest subsidiary, is expected to remain a strong cash flow contributor to AGLR given its robust service territory economics, track record of profitable expansion and stable earnings stream following the full unbundling of the gas industry in Georgia. As a pure energy delivery company, AGLC operates under volume-insensitive straight-fixed variable rates. Accordingly, changes in customer usage patterns due to weather and improvements in equipment efficiencies or other business conditions now have minimal financial impact. The recent adoption of a two-year weather normalization rate structure in AGLR's Virginia jurisdiction should provide further stability to near-term gas distribution segment performance.
AGLR's non-regulated business strategy is focused primarily on energy related investments and fiber optic services. Capital spending in these areas has been relatively modest and has not resulted in incremental debt leverage at the parent company level. Importantly, non-regulated activities have generated economic value for AGLR in the form of cash dividends and/or earnings. During 2001 AGLR launched a natural gas marketing and trading initiative focused on the Southeast region. Fitch recently reviewed AGLR's energy trading unit in Houston (Sequent Energy Management) and found its business practices and risk control policies to be of good quality and consistent with the company's strategy of managing and optimizing excess upstream pipeline capacity and natural gas supply on behalf of AGLR's utility affiliates.
The pending equity issuance will accelerate an improvement in AGLR's consolidated credit profile which has been under moderate pressure since the 2000 acquisition of Virginia Natural Gas (VNG). This factor combined with synergistic cost savings resulting from the successful integration of VNG will restore consolidated credit measures to levels consistent with the 'A-' category. For the fiscal year ended 12/31/02, AGLR's debt to capitalization ratio approximated 56% with cash flow coverage of fixed charges of about 4.0x. After factoring in the equity issuance, AGLR's consolidated leverage should drop to below 50% by year-end 2003 with cash flow to fixed charges improving to approximately 4.5x. Another positive factor is AGLR's strong liquidity position. In particular, AGLR has demonstrated consistent access to bank and commercial paper markets and is not faced with significant debt maturities over the next several years.
AGLC's standalone rating incorporates its low risk business risk profile offset by AGLR's reliance on upstream cash flows from AGLC to service holding company level debt. Although AGLC's standalone credit ratios are consistent with comparable benchmarks for higher rated gas distribution companies, AGLC's senior unsecured debt rating is constrained at 'A' because of its strong financial ties with AGLR. Affiliated companies including AGLC participate in a money pool arrangement at AGLR. Furthermore, the Georgia regulatory framework does not provide a strong ring-fence limiting AGLC's ability to upstream dividends to AGLR.
The following is a summary of outstanding ratings affected by today's action:
AGL Resources, Inc.
--'BBB+' senior unsecured debt rating and $75 million 'BBB' trust preferred securities (issued by AGL Capital Trust I) on Rating Watch Positive.
--'F2' short-term rating affirmed.
AGL Capital Corp (guaranteed by AGL Resources, Inc.)
--$300 million 'BBB+' senior notes and $150 million 'BBB' trust preferred securities (issued by AGL Capital Trust II) on Rating Watch Positive.
--commercial paper affirmed at 'F2'.
Atlanta Gas Light Co.
--Outstanding $497 million MTNs affirmed at 'A'.
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|Date:||Feb 11, 2003|
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