Moody's may upgrade Duke Capital

Moody's Investors Service said it placed under review for possible upgrade the Baa2 long- and Prime-3 short-term debt ratings of Duke Capital LLC and subsidiary Texas Eastern Transmission LP's Baa1 senior unsecured debt rating after a favorable preliminary assessment of Duke Capital's pending restructuring as a subsidiary of Gas SpinCo, Inc., which is a company newly created by Duke Energy Corp. as a vehicle by which to spin off its natural gas holdings into a separate, publicly traded company at the start of next year. Duke Capital's non-gas holdings (international energy, real estate) will be transferred to Duke Energy prior to the spin-off.

"Subject to further review, GasCo appears well-positioned against other diversified natural gas transmission and distribution companies, though the spinoff will leave it fairly leveraged with it retaining most of Duke Capital's existing debt," Moody's vice president and senior credit officer Mihoko Manabe said in an agency rating.

The transfers of Duke Capital's non-gas holdings will eliminate roughly a quarter of its earnings and eliminate only a tenth of its debt. However, the agency said the transfers of the higher-risk non-gas businesses should give Duke Capital, under GasCo, more debt capacity due to the relative stability of its regulated cash flows. GasCo's assets have historically been Duke Capital's primary source of earnings and cash flow, and their strong credit qualities could offset the negative effect of losing its affiliation with Duke Energy.

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