Fitch upgrades Knight

Fitch Ratings said it upgraded Knight Inc.'s long-term issuer default rating to BB+ from B+, its senior secured credit facilities, secured notes and secured debentures to BB+ from BB and the capital trust securities of KN Capital Trust I and III to BB- from B-.

The ratings were removed from Rating Watch positive, where they were placed on Dec. 12, and the outlook is now stable.

The upgrade was made in anticipation of the sale of an 80% stake in subsidiary MidCon LLC to an investment consortium called Myria Acquisition Inc. MidCon is the holding company for Natural Gas Pipeline of America. Myria will pay Knight $2.9 billion, and NGPL PipeCo LLC, the successor company to MidCon, will deliver $3 billion of debt financing proceeds to Knight. Knight will then use the $5.36 billion of net proceeds to reduce debt, beginning with its secured credit facilities that were issued as part of its May 2007 management-led leveraged buyout.

The agency said the new ratings reflect the following favorable considerations: asset sales and debt reduction have met or exceeded expectations; execution risk associated with deleveraging options is no longer a material concern; prospectively, Knight should have minimal liquidity requirements and substantial free cash flow from operations, which may be used to further reduce debt; and Knight's remaining investments have significant market value and liquidity, providing financial flexibility.

Credit concerns include the fact that Knight's cash flow will be subordinated to debt service and maintenance capital expenditures at the three remaining businesses in which it has an ownership interest and longer-term strategic financial and ownership considerations for Knight have not been determined, Fitch said.

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