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Boardwalk Pipelines, LP -- Moody's affirms Boardwalk Pipelines Baa3 rating; stable outlook

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Rating Action: Moody's affirms Boardwalk Pipelines Baa3 rating; stable outlook

Global Credit Research - 16 Dec 2020

New York, December 16, 2020 -- Moody's Investors Service, ("Moody's") affirmed Boardwalk Pipelines, LP's (Boardwalk) Baa3 senior unsecured ratings. Moody's also affirmed the Baa2 senior unsecured ratings of Gulf South Pipeline Company, LLC (Gulf South) and Texas Gas Transmission, LLC (Texas Gas). The rating outlook for all three entities remains stable. Gulf South and Texas Gas are wholly owned subsidiaries of Boardwalk.

"Boardwalk has successfully managed through its legacy pipeline contract expiration cliff through many years of well executed capital projects that have replaced those earnings with revenues backed by long term contracts," commented Pete Speer, Moody's Senior Vice-President. "The partnership's customer base is predominantly demand pull and investment grade counterparties, further supporting its revenue stability and capacity for free cash flow generation as it enters 2021."

Affirmations:

..Issuer: Boardwalk Pipelines, LP

....Senior Unsecured Notes, Affirmed Baa3

..Issuer: Gulf South Pipeline Company, LLC

....Senior Unsecured Notes, Affirmed Baa2

..Issuer: Texas Gas Transmission, LLC

....Senior Unsecured Notes, Affirmed Baa2

Outlook Actions:

..Issuer: Boardwalk Pipelines, LP

....Outlook, Remains Stable

..Issuer: Gulf South Pipeline Company, LLC

....Outlook, Remains Stable

..Issuer: Texas Gas Transmission, LLC

....Outlook, Remains Stable

RATINGS RATIONALE

Boardwalk's Baa3 senior unsecured ratings are supported by the largely fee-based nature of its revenue backed by firm capacity reservations and limited direct commodity price risk. The partnership's core natural gas pipeline and storage assets have been successfully repositioned for the changed natural gas transportation flows caused by the vast rise of production from the Marcellus and Utica Shales. Boardwalk has mitigated much of the declines from expiring contracts with revenue from new capital projects backed by firm long-term contracts from users of natural gas.

The partnership's low distribution payout helped it internally fund capital projects in recent years. Moody's expects distributions to remain moderate to provide Boardwalk with the financial flexibility to allocate free cash flow to growth capital investment or debt repayment and maintain its financial leverage within the range supportive of its rating. Boardwalk also benefits from Loews Corporation's (A3 stable) sole ownership, support of its prudent financial policies and ability to support larger growth projects if such opportunities emerge over time.

Gulf South's and Texas Gas's Baa2 senior unsecured ratings reflect their creditors' priority claims to the respective pipeline's assets. The ratings are supported by both pipelines' respective stand-alone market positions, quality of supply sources, contract quality, and much lower standalone financial leverage than Boardwalk. Although neither pipeline guarantees Boardwalk's senior notes, their positive credit attributes are restrained by their importance to Boardwalk's ability to service its debts and make distributions. The implicit burden of Boardwalk's debt and distributions are incorporated into the pipelines' ratings.

Boardwalk had good liquidity, supported by free cash flow generation and ample borrowing capacity on its revolving credit facility. As of September 30, 2020, the partnership had $349 million of cash and full availability on its $1.475 billion revolving credit facility. The large cash balance was the result of the partnership issuing $500 million of senior notes in August 2020, which was applied towards the early redemption of Texas Gas' $440 million senior notes in November 2020. Following the notes redemption and $102 million annual distribution payment in the fourth quarter, Boardwalk's borrowing capacity on its revolver remained ample. The revolver matures in May 2022 and has a covenant limiting Debt/EBITDA to 5x, which can be expanded to 5.5x following an acquisition. Moody's expects Boardwalk to comfortably comply with the covenant in 2021 and to renew the revolver in the ordinary course.

The rating outlook is stable based on Moody's expectation that continued execution on capital projects and moderate distributions will enable Boardwalk to manage its financial leverage and maintain good liquidity in line with its Baa3 ratings.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

In order for Boardwalk's, Gulf South's and Texas Gas's ratings to be upgraded, Boardwalk's financial leverage would have to fall below 4.5x and be maintained at that level with continued strong distribution coverage.

If leverage were to rise because of growth projects, acquisitions or unanticipated earnings deterioration then Boardwalk's, Gulf South's and Texas Gas's ratings could be downgraded. Debt/EBITDA above 5x at Boardwalk could result in a ratings downgrade.

The principal methodology used in rating Boardwalk Pipelines, LP was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. The principal methodology used in rating Gulf South Pipeline Company, LLC and Texas Gas Transmission, LLC 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 these methodologies.

Boardwalk Pipelines, LP is an operating partnership subsidiary of Boardwalk Pipeline Partners, LP (BWP), an indirect wholly owned subsidiary of Loews Corporation. BWP fully and unconditionally guarantees Boardwalk's debt. Boardwalk's operations are primarily focused on transporting natural gas throughout the Gulf Coast and Midwestern US through its wholly owned interstate pipeline subsidiaries, Gulf South and Texas Gas. Boardwalk also owns and operates natural gas storage facilities and natural gas liquids (NGL) pipeline and storage facilities.

REGULATORY DISCLOSURES

For 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. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. 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.

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.

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.

Peter Speer Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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