Fitch Ratings-New York-01 March 2010: Fitch Ratings has affirmed...

Fitch Ratings-New York-01 March 2010: Fitch Ratings has affirmed the Issuer Default Rating (IDR) and outstanding senior unsecured debt ratings for NGPL PipeCo LLC (NGPL) at 'BBB-'. The Rating Outlook is Stable. The rating action affects $3 billion of outstanding debt. NGPL is 80% owned by Myria Acquisition Inc. (Myria), a consortium of investors including Prime Infrastructure Group, a Canadian pension fund and a Netherlands pension fund and 20% owned by Kinder Morgan, Inc. (IDR 'BB+', Stable Outlook).

NGPL's ratings and Stable Outlook reflect the predictable cash flows generated by its Federal Energy Regulatory Commission (FERC) regulated pipeline assets, a favorable competitive market position, limited liquidity needs and a conservative growth strategy. NGPL is one of the largest interstate pipeline and storage systems in the U.S. While the Chicago/Midwest market that it delivers into is served by several competing pipelines, NGPL boasts competitive rate structures and has been able to maintain its strong market position. Pipeline capacity is mostly committed under contracts ranging from one to five years with an average contract length of two years. The average contract length is relatively short. However, NGPL has been able to limit capacity re-contracting risk and generally maintain its revenues from contract rollovers. In addition, NGPL's position is enhanced by its access to diverse and resource-rich supply areas and deliverability to a high quality, utility dominated customer base.

The ratings also consider several offsetting factors. Most significantly, in November 2009, NGPL was notified by FERC of a proceeding against it under Section Five of the Natural Gas Act to determine whether NGPL's current rates, which were approved by FERC in NGPL's last rate case settlement, remain just and reasonable. In response, in February 2010, NGPL submitted cost and revenue studies with FERC indicating it under-recovered its cost of service for the 12 months period ended October 2009. Resolution of the case may extend into 2011. Fitch would consider taking negative rating action against NGPL should its projected revenues be materially lowered because of the FERC rate case.

Based on Fitch estimates, NGPL will continue to trend toward the higher ranges of leverage for investment grade pipelines, with debt/EBITDA expected to fall between 4.5 times (x) and 5.0x over the next several years. In addition, NGPL exhibits some sensitivity to commodity prices through its operational efficiency sales. As a result, absent the benefit of hedges, revenues would be expected to decline in a softening natural gas price environment. Finally, as with other pipeline systems, NGPL is exposed to margin deterioration as the U.S. pipeline infrastructure continues to evolve and natural gas supply, demand and price dynamics change.