S&P: Questar Corp. And Subsidiaries Ratings Lowered, Off Watch; Outlook Stable
We lowered our issuer credit rating on subsidiary Questar Pipeline Co. to 'BBB' from 'A' following our reassessment of the group rating methodology as moderately strategic from core, in part because of a revised strategy following the ownership change. We removed the rating from CreditWatch, where we placed it with negative implications on Feb. 1, 2016. The rating outlook is stable.
At same time, we lowered our rating on Questar Gas' senior unsecured debt to 'BBB+' from 'A' and Questar Pipeline's senior unsecured debt to 'BBB' from 'A'. We also removed the ratings from CreditWatch.
We are subsequently withdrawing our issuer credit rating and short-term rating on Questar Corp. In addition, the commercial paper rating will be withdrawn after all the commercial paper maturities are redeemed.
"The downgrades reflect the lower-rated DRI's acquisition of Questar," said S&P Global Ratings credit analyst Gerrit Jepsen. We consider Questar and QGC to be core subsidiaries of Dominion and have no significant insulation measures in place. Therefore, we align our issuer credit ratings on these entities with DRI's group profile of 'bbb+'. We now consider QPC as less strategically important to DRI because we expect that QPC will subsequently be sold to Dominion Midstream Partners, resulting in one notch of uplift from QPC's 'bbb-' stand-alone credit profile. Therefore, we have lowered the issuer credit rating on QPC to 'BBB' from 'A'.
Our stable outlook over the next two years on Questar Gas and Questar Pipeline reflects the outlook of Dominion that incorporates our expectation that DRI will continue to consist mostly of lower-risk regulated utilities and that the financial measures will consistently be in the middle of the range for the significant financial risk profile category, reflecting FFO to total debt of 16% to 18%. In addition, the stable outlook on Questar Pipeline incorporates our base-case scenario of FFO to total debt averaging around 30% over the next few years.
Lower the rating on QGC and QPC if we lowered our rating on DRI. This could occur if DRI's business risk profile weakens through an acquisition of a company with a weaker business risk profile or the company's effective management of regulatory risk weakens. We could also lower DRI's rating if its consolidated financial measures consistently weakened to the lower-end of the significant financial risk profile category, reflecting FFO to total debt consistently below 15%. For Questar Pipeline, we could also lower the rating if its stand-alone credit profile weakened, including if FFO to total debt consistently fell below 23%.
We could raise the ratings on QGC if DRI's financial measures consistently improved to the higher end of the significant financial risk profile category, reflecting FFO to total debt that is consistently greater than 20%. For Questar Pipeline, we could raise our ratings if its stand-alone credit profile strengthened, reflecting FFO to total debt consistently greater than 35% and DRI's group credit profile also improved, reflecting DRI's consolidated FFO to total debt that is consistently greater than 20%.