Moody's changes Black Hills outlook to negative

Moody's Investors Service said it changed Black Hills Corp.’s outlook to negative from stable and affirmed its issuer rating at Baa1 and senior credit facility and senior bonds at Baa1, Black Hills Power, Inc.’s issuer rating at A3 and senior secured first mortgage bonds at A1 and SourceGas LLC’s senior bonds at Baa2.

The rating actions follow the announcement that Black Hills will acquire SourceGas Holdings LLC for $1.89 billion. The financing plan includes an issuance of debt ranging from $450 million to $550 million and equity and equity-like instruments together ranging from $575 million to $675 million. Black Hills will assume and refinance about $720 million of outstanding debt at SourceGas.

"The negative outlook reflects anticipated weaker pro forma consolidated credit metrics at Black Hills following the acquisition compared to the company's stand-alone credit metrics," analyst Jairo Chung said in an agency news release.

"Furthermore, there are still uncertainties around key issues related to the acquisition, such as any regulatory approval conditions required, potential cost savings and the combined company's liquidity profile."

However, the agency said the decline in financial metrics is slightly offset by an anticipated improvement in the company's business risk profile due to its increased scale and diversity as well as additional opportunity to grow its rate base in the constructive regulatory environments that SourceGas operates in.

For SourceGas, Moody’s views the acquisition as a credit-neutral event for now.

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