Fitch Rates Panhandle Eastern Pipe Line Notes 'BBB'

Business Wire, Oct 23, 2007

NEW YORK -- Fitch Ratings has assigned a 'BBB' rating to Panhandle Eastern Pipe Line Company, LP's (PEPL) proposed $300 million issuance of senior notes due 2017. The Rating Outlook for PEPL is Stable.

Net note proceeds will be advanced under a demand note to Southern Union Co. (NYSE: SUG) the parent company of PEPL. SUG (Issuer Default Rating [IDR] 'BBB' by Fitch with a Stable Outlook) will use the funds to repay indebtedness under its revolving credit agreement and over time return the money to PEPL to fund its capital expenditure program.

PEPL's rating and Stable Rating Outlook reflect the mix of its low-to-moderate risk FERC regulated interstate natural gas pipeline, storage, and liquefied natural gas (LNG) terminalling and regasification assets, its stable long-term standalone financial performance and a moderately aggressive growth strategy albeit underpinned by firm contracts. In its analysis Fitch also considered the financial and operating characteristics of SUG and other affiliated companies of PEPL, including SUG's low-risk gas utility business and its more volatile midstream operations acquired in 2006.

PEPL and its subsidiary Trunkline Gas Company collectively own and operate approximately 10,000 miles of onshore pipeline transporting natural gas from the Gulf of Mexico, South Texas and the panhandle regions of Texas and Oklahoma to markets in the Midwest and Great Lakes region. Sea Robin Pipeline Co., a subsidiary of PEPL, operates a 432-mile offshore system. Near-term capacity turnback risk in competitive Midwest markets is somewhat mitigated by an average remaining contract life for PEPL of 4.6 years and Trunkline of 9.9 years and steady demand for capacity from large gas distribution utility shippers. Through Trunkline LNG, the company owns and operates an LNG terminal in Lake Charles, Louisiana with a peak send out capacity of 2.1 bcf/d.

Capital spending for PEPL and its subsidiaries will be significant over the next several years and is highlighted by several revenue generating organic expansion projects. Growth capital expenditures include a $230 million field zone expansion by Trunkline Gas that adds capacity to its pipeline system in Texas and Louisiana and increases its ability to make deliveries to the Henry Hub and other regional delivery points. In addition, at an estimated cost of $280 million, Trunkline LNG is installing new facilities at its Lake Charles terminal to allow ambient air vaporization of LNG and for natural gas liquids processing. The new facilities are expected to be in service by late 2008 and, like existing LNG operations, are supported by firm capacity contracts with BG LNG Services that extend through 2028. PEPL's near-term maintenance spending is also material, as it is in the process of replacing compressors and pipe on its system which in total could cost $370 million.

PEPL's standalone consolidated credit measures are generally weak for its peer group of 'BBB' rated pipeline companies, in part reflecting its aggressive capital spending. Debt to EBITDA for 2007, factoring in the new notes, should approximate 4.6 times (x). This ratio should gradually improve as ongoing growth projects begin generating incremental cash flow. The future direction of PEPL's ratings may also be affected by future strategic initiatives at SUG including the expected development of an affiliated MLP utilizing its midstream assets. However, given the current uncertainty on the timing, size and structure of the MLP, Fitch is unable to speculate at this time on how it would affect ratings on SUG and PEPL.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.