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Iroquois Gas Transmission System, L.P. -- Moody's affirms Iroquois Gas Transmission System, L.P.'s A3 rating; outlook stable

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Rating Action: Moody's affirms Iroquois Gas Transmission System, L.P.'s A3 rating; outlook stableGlobal Credit Research - 22 Apr 2021Approximately $316 million of debt outstandingNew York, April 22, 2021 -- Moody's Investors Service ("Moody's") today affirmed Iroquois Gas Transmission System, L.P.'s ("Iroquois") A3 senior unsecured rating. The outlook is stable.Affirmations:..Issuer: Iroquois Gas Transmission System, L.P.....Senior Unsecured Regular Bond/Debenture, Affirmed A3Outlook Actions:..Issuer: Iroquois Gas Transmission System, L.P.....Outlook, Remains StableRATINGS RATIONALE"Iroquois" strong competitive position as one of four pipelines serving the New York market continues to support its consistent financial and operating performance," stated Edna Marinelarena, Moody's analyst. The pipeline's credit is also reflective of the solid credit quality of its customer base and slightly improving contract tenors. We see the company sustaining its strong credit profile with a funds from operation to debt ratio well above 30% over the next several years.Iroquois' revenues are derived from a portfolio of firm contracts that have historically translated into highly predictable cash flow. The revenue is based on demand charges under which shippers pay their contractual capacity charge monthly, regardless of volumes shipped. As of the first quarter in 2021, the pipeline was largely contracted at about 90% of capacity. The weighted average tenor of Iroquois' contracts is relatively short at about 3 years, although this has increased slightly in recent years.Typically, up to 20% of Iroquois' capacity, split across more than 10 shippers, are under one year contracts that are renewed annually. These contracts are with power generators and energy marketers that have a history of renewing their contracts on a short-term basis without any detrimental impact to the pipeline's economics. However, management notes that some shippers have moved toward longer tenor contracts over the last two years, a credit positive. This trend could continue as the pipeline's competitive position improves over time.Iroquois has a long track record of producing highly predictable and stable credit metrics that have been on the high end of the spectrum relative to the pipeline's credit quality with FFO to debt averaging 35% over the last five years. Despite pressure on revenue due to the effects of tax reform and disallowance of income tax recovery for MLP-owned assets, Iroquois' financial performance improved slightly in 2020 with its FFO to debt ratio increasing to about 35% from 33% in 2019. These results can be attributed to management successfully negotiated higher rates, which points to the improving pipeline competitiveness. We see the company maintaining its strong financial profile over the next several years given that it has no plans to issue debt and will benefit from improving market conditions.Rating OutlookThe stable outlook incorporates our view that the pipeline will continue to produce consistent financial and operating results over the next several years. We expect the company to generate an FFO to debt ratio above 30% and continue to improve its contract tenors given its importance to the region and policy changes in New York State limiting any new natural gas pipelines.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGFactors That Could Lead to an UpgradeIroquois' rating could be upgraded if there is a material increase in its contract tenors and a sustained increase to its financial ratios including an FFO to debt ratio above 38%.Factors That Could Lead to a DowngradeIroquois' rating could be downgraded if the company is unable to recontract expiring capacity at favorable rates resulting in a weakening of key financial ratios, including FFO to debt falling below 28% on a sustained basis. The rating could also be downgraded if there is a material deterioration in the credit quality of either the pipeline's shippers or owners.PROFILEIroquois Gas Transmission System, L.P. is the owner of a FERC-regulated interstate natural gas pipeline that extends 414 miles from the US-Canadian border at Waddington NY, through Connecticut to South Commack, Long Island, NY and Hunts Point, Bronx, NY. The pipeline has an approximate capacity of 1.7 Bcf/d and has been in operation since 1991. Iroquois is owned by TC Energy Corporation (50%, Baa2 stable) and BHE GT&S, a subsidiary of Berkshire Hathaway Energy Company (50%, A3 stable). The pipeline is operated by the Iroquois Pipeline Operating Company, a wholly-owned subsidiary of Iroquois and regulated by the Federal Energy Regulatory Commission (FERC).The principal methodology used in this rating 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. 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 rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is 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.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. Edna Marinelarena Analyst Infrastructure 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 Michael G. Haggarty Associate Managing Director Infrastructure 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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