AL NGPL Holdings LLC -- Moody's assigns Ba3 rating to AL NGPL Holdings LLC's term loan

Rating Action: Moody's assigns Ba3 rating to AL NGPL Holdings LLC's term loanGlobal Credit Research - 30 Mar 2021New York, March 30, 2021 -- Moody's Investors Service, ("Moody's") assigned first-time ratings to AL NGPL Holdings LLC (AL NGPL), including a Ba3 Corporate Family Rating (CFR), a Ba3-PD Probability of Default Rating (PDR) and a Ba3 rating to its proposed $400 million senior secured term loan due 2028. The rating outlook is stable. There is no change to NGPL PipeCo LLC's (NGPL) Baa3 senior unsecured rating and stable outlook.The proposed term loan will refund to funds managed by ArcLight Capital Partners LLC (ArcLight) a portion of the equity funding used to purchase a stake in NGPL PipeCo LLC, which will result in almost 50 percent debt funding for the acquisition. On March 8, 2021, funds managed by ArcLight purchased a 25 percent stake in NGPL (owner of Natural Gas Pipeline Company of America LLC) from Kinder Morgan, Inc. (KMI, Baa2 stable) and Brookfield Infrastructure Partners L.P. (BIP, a subsidiary of Brookfield Asset Management, Inc., Baa1 stable) for $830 million, leaving KMI and BIP each with 37.5 percent ownership stakes."The debt at AL NGPL is structurally subordinated to the debt at NGPL and adds to the total amount of debt serviced by NGPL's cash flows," commented James Wilkins, Moody's Vice President. "However, we expect NGPL's transportation and storage, fee-based businesses, which are highly contracted with minimum volume commitments, and AL NGPL's governance rights will support steady, ongoing cash distributions to AL NGPL."Assignments:..Issuer: AL NGPL Holdings LLC.... Probability of Default Rating, Assigned Ba3-PD.... Corporate Family Rating, Assigned Ba3....Senior Secured Term Loan, Assigned Ba3 (LGD4)Outlook Actions:..Issuer: AL NGPL Holdings LLC....Outlook, Assigned StableRATINGS RATIONALENGPL's Ba3 CFR reflects NGPL PipeCo LLC's (NGPL, Baa3 stable) credit profile offset by AL NGPL's minority ownership and non-operating interest. The rating considers the additional $400 million of debt placed at AL NGPL that is structurally subordinated to NGPL's $2 billion of balance sheet debt. NGPL is highly levered (~ 4.6x debt/EBITDA at September 30, 2020) and AL NGPL's pro forma leverage is higher at 8.3x (calculated using its 25 percent proportional share of NGPL debt and EBTIDA as well as the $400 million of debt at AL NGPL). AL NGPL has no physical assets nor does it generate revenue or cash flow. It is entirely dependent on distributions from NGPL to service its $400 million term loan. Moody's expects NGPL to grow its cash flow with incremental volumes from modest new projects that have recently entered service. Further growth spending will likely be funded with debt at NGPL or contributions from the owners such that distributions are not cut to fund investments. The rating considers the structural subordination, AL NGPL's ownership percentage of NGPL and AL NGPL's governance rights that ensure continued distributions from NGPL. AL NGPL has one of five board seats, but implementation of many actions including a change in the distribution policy requires an 85 percent supermajority that effectively requires AL NGPL's consent to implement.NGPL has a geographically extensive natural gas pipeline network from West Texas and the US Gulf Coast up to the Chicago area serving demand from local gas distribution companies, power plants, and industrial users as well as LNG exporters on the US Gulf Coast. It benefits from a stable fee-based, demand pull business underpinned by long-term contracts with take-or-pay provisions (over one-half are attributable to investment grade rated counterparties). The company had engaged in numerous growth projects, which each individually were of a modest size, but consumed much of its cash flow from operations. Following ArcLight's acquisition of its 25 percent stake, NGPL will either debt finance growth projects or seek contributions from its owners in order to maintain stable distributions sufficient to service the AL NGPL debt.AL NGPL's proposed term loan is rated Ba3, the same level as the Ba3 CFR, reflecting the lack of other material amounts of debt in the liability structure. The term loan has a first priority senior secured lien on all assets of AL NGPL, including the equity interest in the entity that indirectly owns Natural Gas Pipeline of America LLC.Moody's expects AL NGPL to have adequate liquidity through mid-2022. The company will receive quarterly distributions from NGPL that will be used to service its debt and minor operating expenses. It also has a $13 million letter of credit facility used to fund a debt service account that will cover six months of interest and amortization on the senior secured term loan. The term loan, which is due in 2028, has one financial covenant -- a minimum debt service coverage ratio of 1.10x. Moody's expects the company to comply with the covenant through mid-2022. AL NGPL has no revolving credit facility or alternate sources of immediate liquidity.The stable outlook reflects the stable outlook on NGPL's ratings (supported by a strong contracted fee-based business) and Moody's expectation that NGPL's steady cash flow will support consistent distributions to AL NGPL sufficient to cover AL NGPL's debt service requirements.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAL NGPL's rating could be upgraded if NGPL PipeCo LLC's rating is upgraded. AL NGPL's rating could be downgraded if NGPL PipeCo LLC's rating is downgraded, distributions to AL NGPL decline or debt at AL NGPL materially increases.AL NGPL Holdings LLC (AL NGPL) is a holding company established in connection with the March 2021 purchase by funds managed by ArcLight of a 25 percent stake in NGPL PipeCo LLC. NGPL PipeCo LLC is a holding company that wholly owns Natural Gas Pipeline Company of America LLC, an interstate pipeline regulated by the Federal Energy Regulatory Commission (FERC). NGPL is jointly owned by funds managed by ArcLight (25%), Kinder Morgan, Inc. (37.5%) and Brookfield Infrastructure Partners, LP (37.5%).The principal methodology used in these ratings was Natural Gas Pipelines published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113727. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. James Wilkins Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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