Standard & Poor's Ratings Services today assigned its “A-3” short-term corporate credit rating to Columbia Pipeline Group Inc. (CPG) and its “A-3” short-term rating to CPG's $1 billion commercial paper (CP) program. The long-term corporate credit rating on CPG is “BBB-” and the outlook is stable.
According to Standard & Poor's rating criteria, S&P’s “BBB-” corporate credit rating on CPG maps to a CP rating of “A-3.” The company will use the program for working capital requirements and other general corporate purposes.
"The rating action reflects what we consider to be CPG's 'strong' business risk profile and 'aggressive' financial risk profile," said Nora Pickens, Standard & Poor's credit analyst.
The "strong" business risk profile reflects cash flows that predominantly stem from fee-based take-or-pay contracts, assets that are well positioned in the Marcellus and Utica shale regions, and meaningful storage capacity. These strengths are only partially offset by the Columbia Gulf Transmission pipeline's weakening competitive position due to changing natural gas flows and execution risk related to the company's large capital spending program over the next two years. The "aggressive" financial risk primarily reflects S&P's expectation that debt to EBITDA will be slightly elevated – at 4.5x to 5x – before modestly decreasing once the company's growth projects come on line in 2018.
The stable rating outlook reflects CPG's highly visible cash flow generated from take-or-pay transportation agreements, adequate liquidity, and S&P’s expectation that debt to EBITDA will be 4.5x to 5x. S&P could lower the rating if the company confronts recontracting challenges with its major customers, has cost overruns related to its organic growth projects, or faces operating issues that lead debt to EBITDA to rise above 5x for a sustained period.
Although unlikely in the near term, S&P could consider an upgrade over time if the company improves its scale and successfully executes on its expansion projects while maintaining debt to EBITDA below 4x.