Fitch Affirms KeySpan Corporation and Units; Outlook Stable

  Fitch Affirms KeySpan Corporation and Units; Outlook Stable

Business Wire

NEW YORK -- October 1, 2013

Fitch Ratings has affirmed the Issuer Default Ratings (IDR) of KeySpan
Corporation (KSC) and of its subsidiaries, Brooklyn Union Gas Company (BUG),
and KeySpan Gas East Corporation (KGE), at 'A-'. A full list of rating actions
follows at the end of this release. The Rating Outlooks are Stable.

KEY RATING DRIVERS:

Low-risk Business Profile: Ownership in regulated natural gas distribution
companies in New York and Massachusetts with regulatory risk mitigation
mechanisms, long-term contracted power generating assets, and a conservative
capital structure support the affirmation of KSC's IDR. BUG and KGE benefit
from relatively stable utility cash flows and earnings, a generally balanced
regulatory environment in New York, and liquidity support from the ultimate
U.S. parent, National Grid USA, Inc. (NGUS; not rated by Fitch) through
inter-company money pools.

Supportive Credit Measures: For KSC, Fitch expects consolidated funds from
operation (FFO) based leverage (FFO/debt) to remain between 17%-20% over the
rating horizon (2014-2016), and interest coverage (FFO/interest) to remain
between 4.8-5.3x over the same period. While KSC's ratios are near the lower
end of the spectrum for an 'A-' utility holding company, predictable
utility-based cash flows from its subsidiaries and their relatively
conservative capital structures mitigate credit default risk, in Fitch's
opinion.

For BUG and KGE, FFO to debt is expected to remain above 18% and FFO to
interest ratio is expected to be above 4x over the rating period (2014-2016).
Fitch's assumptions include approval of a general rate case request, to be
filed by BUG and KGE in 2014, by the New York Public Service Commission with
the implementation of new rate plans no later than January 2015.

Balanced Regulatory Environment: Regulatory framework in New York includes
provisions for timely recovery of costs and reasonable return on invested
capital support the low-risk business profile of KSC's regulated businesses.

Regulatory capital structure, absence of commodity price risk and revenue
stabilization measures, i.e. decoupling, weather normalization, and monthly
commodity cost adjustment, regulatory mechanism for gas distribution utilities
lower BUG and KGE's cash flow risk.

Financial Flexibility: Consolidated liquidity at National Grid Plc. (NG;
'BBB'/Stable Outlook), the ultimate parent, and its access to the capital
markets, including hybrid security issuance in 2012/2013 fiscal year, has been
strong. Fitch believes that NG and its subsidiaries will continue to have good
access to the capital markets at a reasonable cost under a normal economic
environment. Consolidated operating cash flow, access to debt markets, and
liquidity available through NGUS provide sufficient financial flexibility and
support the Stable Outlook.

Diversified Operations: KSC's business profile benefits from geographic and
business diversification. KSC operates regulated natural gas distribution
business in Massachusetts and New York and has a long-term, contracted power
generation business with clauses to pass-through commodity and environmental
compliance costs. These segments provide sufficient cash flow diversity and
stability.

Linkage To National Grid's Credit Profile: Liquidity support from NG and NGUS
and lack of standalone liquidity facilities at KSC and its operating companies
restricts KSC and its subsidiaries' IDR to that of NG's IDR ('BBB'/Stable
Outlook). However, regulatory separation of KSC's operating companies from NG
and NGUS and the standalone low-risk business profile of these companies
provide sufficient support for the two notch uplift from NG's IDR. The two
notch IDR uplift is also supported by the regulatory ring-fencing around BUG
and KGE's capital structure, regulatory limitations on the dividend payout,
and the absence of any operational overlap between KGE, BUG, and other
operating subsidiaries of NGUS and its intermediate holding subsidiaries. In
addition, superiority of claims of KSC and its subsidiaries' (BUG and KGE)
debt-holders over NG's debt holders and strong credit protection measures at
KSC's regulated subsidiaries also support the rating differential between KSC,
BUG, and KGE's IDR and that of NG's IDR.

Higher Distributions Not Expected: A large capital expenditure at NG's
UK-based regulated subsidiaries along with liquidity needs of NGUS should be
funded at the parent level and not factored in the current ratings of KSC,
BUG, and KGE. The dividend distribution policy at BUG and KGE is subject to
regulatory ring-fencing and higher capex needs at BUG and KGE will limit the
financial flexibility at these companies to support a large dividend payout.

Manageable Capex: The proposed capex through fiscal year 2015 at KGE and BUG
is manageable without materially affecting the credit metrics. Fitch expects
capital spending for any emergency infrastructure maintenance, i.e. pipeline
safety and reliability, to be significant and will have the lag in recovery of
the related costs requiring additional financial flexibility over the spending
period.

Sufficient Short-Term Liquidity: At the end of March 2013, KSC had $600
million in cash and an additional $2.6 billion was available through NG and
NGUS' revolving credit facilities. The current liquidity is sufficient to
cover short-term capital needs of the group, at least through 2015.

Manageable Debt Maturities: KSC, BUG, and KGE have manageable debt maturities
through 2016. Fitch expects KSC and its subsidiaries to refinance its debt
maturities, including inter-company borrowings at a reasonable cost.

RATING SENSITIVITIES

Ratings Upgrade Unlikely: Positive rating actions are unlikely given large
capital investment program at NG's UK-based regulated subsidiaries and at BUG;
Fitch believes that any material improvement in financial performance of KSC's
cash flow over next two years is highly unlikely.

Negative Rating Action: Deterioration in the group's credit quality, a
negative regulatory outcome of the upcoming New York general rate case
applications due to be filed in 2014, reduced financial flexibility, and any
major infrastructure safety related event in KSC's regulated subsidiary
service territories if negative for KSC and its operating companies' credit
profile could result in adverse rating actions for KSC and/or its operating
subsidiaries.

For KSC, an increase in absolute debt from the current level or downgrade of
NG's IDR will result in a rating downgrade.

Fitch affirms the following ratings:

KSC

--Long-term IDR at 'A-';

--Senior unsecured debt at 'A-'.

KGE and BUG

--Long-term IDR at 'A-';

--Senior unsecured debt at 'A'.

New York State Energy Research and Development Authority (NYSERDA) (Brooklyn
Union Gas Projects)

--Gas facility revenue bonds at 'A'.

The Rating Outlooks are Stable

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 5, 2013;

--'Parent and Subsidiary Rating Linkage', Aug. 5, 2013.

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=803768

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Contact:

Fitch Ratings, Inc.
Primary Analyst
Roshan Bains, +1-212-908-0211
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
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Director
or
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