S&P revises DBNGP outlook

Ratings services Standard & Poor's said today it had revised its outlook on the 'BBB-' issuer credit ratings on DBNGP Trust, the owner of the Dampier to Bunbury Natural Gas Pipeline, and related finance company DBNGP Finance Co, from stable to negative.

Yesterday, the pipeline owner and operator, which trades as DBP, said it had completed negotiations with a majority of customers that use its pipeline, in a move that would reduce its long-term risk profile.

The renegotiated contracts establish tariffs until 2020, with the new ‘standard shipper contracts’ to last until between 2025 and 2033.

“At the same time we affirmed our 'BBB-' issuer credit rating and all debt issue credit ratings on both entities,” S&P said in a statement.

“The negative outlook reflects the downward pressure on (the trust’s) leverage metrics that will stem from the new shipping contracts, details of which were announced by DUET Group on August 7,” S&P credit analyst Minh Hoang said.

“Although we expect the financial profile to be supported by lower interest costs, such benefit is likely to be offset by the lower tariffs agreed to in the new shipping contracts; we forecast that over time, lower tariffs will pressure financial metrics.

“Accordingly, we believe DBP's financial profile may not remain commensurate with the 'BBB-' rating without shareholder support.”

S&P said the the affirmation of the 'BBB-' ratings reflected its view of the trust’s strategically important status to the DUET Group, which had a track-record of supporting the assets in its portfolio, including the WA pipeline owner.

“This track record of support means we believe that DUET will take appropriate steps to ensure DBP maintains the financial metrics we expect for the rating,” the agency stated.

“That said, there remains a heightened risk of a downward transition in creditworthiness in the absence of clarity as to how the shareholders will provide the expected financial support, and when this would take effect.

“The negative outlook reflects the near-term pressure on DBP's credit metrics caused primarily by recontracting at lower tariffs with a reduction in contracted capacity. It also reflects our view that while the shareholders will take steps to support DBP's financial profile, the timing and mechanism of such support remains unclear.”

Mr Hoang added the rating could be lowered by one notch within the next 6-12 months if the agency lost confidence that DBP's shareholders will take action to restore the company's financial metrics to a level consistent with the current rating.

“The outlook could be revised to stable upon firm action or a credible near-term plan to restore DBP's credit metrics to a level commensurate with the BBB-rating, which we consider to be FFO to debt greater than 5 per cent,” he said.

The pipeline is 80 per cent controlled by Duet Group and 20 per cent by Alcoa.