Fitch downgrades Mountaineer Gas to BB+

Fitch Ratings said it downgraded Mountaineer Gas Co.'s issuer default rating to BB+ from BBB- and placed the company's BBB- senior unsecured rating and F3 short-term rating on Ratings Watch negative, which reflects the agency's concern that the company may not meet its projections in the near term.

Mountaineer Gas had lower-than-forecasted cash flow during the 12 months ended Sept. 30 as a result of reduced demand due to warmer weather and conservation, lower transport revenue and one-time expenses from the development of a new accounting system as well as a new technology department. The weaker-than-expected results precipitated a breach of the interest coverage covenant in the company's bank facility. The banks have given the company a waiver for the default and are currently negotiating a permanent change to covenant calculations.

The agency said events that could lead to affirmation of the current ratings and assignment of a stable outlook include reaching an agreement on revised covenants with lenders, successful implementation of new accounting systems and reaching credit metrics commensurate with the ratings category and company forecasts. On the other hand, the lack of an improvement in credit metrics and a resolution of accounting systems and procedure issues in the next three to six months would be likely to result in further negative rating actions.

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