Fitch Rates Rockies Express $1.3 Billion Notes 'BBB'

Tag : cp wire

NEW YORK--( BUSINESS WIRE )--Fitch Ratings has assigned a 'BBB' rating to Rockies ExpressPipeline LLC's (REX) offering of $1.3 billion senior unsecurednotes (senior notes). The senior notes are expected to be issued inthree tranches, with maturities of 5, 10 and 30 years. REX's IssuerDefault Rating (IDR) is 'BBB'. The Rating Outlook is Stable. UnlikeREX's outstanding commercial paper (CP, rated 'F2' by Fitch) andsenior notes due August 2009 (rated 'BBB' by Fitch), the seniornotes will not be guaranteed by the three owners of REX, KinderMorgan Energy Partners, L.P. (KMP), Sempra Energy (Sempra), andConocoPhillips (COP). Senior Note proceeds will be used to repayoutstanding CP.
The senior notes 'BBB' rating is based on the followingconsiderations:
--Stability in revenues generated under 10-year firm shippercontracts;
--Low counterparty exposure with 78% of volumes committed toshippers rated by Fitch 'A-' or better;
--Favorable Rocky Mountain supply characteristics;
--Strong eastern and Midwestern market fundamentals;
--Low regulatory risk with FERC approval received in May 2008 andtransportation rates fixed for 10 years;
--Favorable pipeline route that intersects a total of 25 interstateand intrastate pipelines and gives shippers significant marketflexibility and competitive pricing advantage;
--Minimal post-construction liquidity requirements;
--Supportive ownership;
--Anticipated credit measures consistent with 'BBB' rating.
Additional considerations are construction and execution risksassociated with completion of the final 638-mile REX-East pipelineleg. The REX Pipeline is a 1,678-mile system designed to delivernatural gas produced in the Rocky Mountain region to markets in theMidwest and eastern U.S. The pipeline is being built in segmentswith two supply area legs having been completed by early 2007. Akey segment running 713 miles from Cheyenne, Wyoming to AudrainCounty, Missouri, REX-West, was completed and became fullyoperational on May 20 2008. The 638-mile portion extending eastfrom Missouri to Clarington, Ohio, REX-East, is targeted to befully operational in the third quarter of 2009 with partial serviceby the end of 2008. REX received a final Environmental ImpactStatement (EIS) from FERC on April 11, 2008. The EIS containsprovisions that will result in increased costs and may impactscheduled completion dates. In addition, current market conditions,i.e., availability of skilled labor, high demand for equipment andincreased energy costs have resulted in an industry-wide inflationin construction costs. While it is too early to estimate theprecise cost impact, REX currently believes the cost increase couldbe an additional 5%-10% of the current total REX project estimateof approximately $5 billion. Furthermore, a delay in completionbeyond designated target dates would result in revenue lag in 2009and potential liquidated damages payments that could total amaximum of $20 million.
Construction financing is being funded by REX's guaranteed CPprogram. The CP is backstopped by a $2.0 billion five-year,unsecured revolving credit facility due April 28, 2011. Thefacility can be amended to allow for borrowings up to $2.5 billion.The current short-term debt balance is approximately $1.8 billion.Short-term borrowings have been periodically reduced by equitycontributions from REX's owners that have so far totaled $1.0billion.
REX is owned by KMP (rated 'BBB' by Fitch) - 51%, Sempra (rated 'A'by Fitch) - 25%, and COP (rated 'A' by Fitch) - 24%. The threeowners of REX unconditionally guarantee borrowings under the CPprogram and credit facility, as well as the notes due August 2009,severally (not jointly) in the same portion as their percentageownership of REX. Post the completion of the REX pipeline theownership will be KMP (50%), Sempra (25%), and COP (25%). It isanticipated that REX will eventually refinance its guaranteed CPand notes with senior unsecured debt that ranks pari passu with thesenior notes.
Fitch's rating definitions and the terms of use of such ratings areavailable on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available fromthis site, at all times. Fitch's code of conduct, confidentiality,conflicts of interest, affiliate firewall, compliance and otherrelevant policies and procedures are also available from the 'Codeof Conduct' section of this site.