S&P Raises Outlook On Southern Union To Stable
Mar 6, 2009 14:59:06 (ET)

DOW JONES NEWSWIRES

Standard & Poor's Ratings Service eased the potential of downgrading Southern Union Co. (SUG) to junk territory, one day after the natural-gas processor and distributor said it reached an agreement with activist shareholder Sandell Asset Management Corp. to avoid a proxy contest.

"The settlement with Sandell largely removes our concerns that Sandell could implement strategies that we deemed as detrimental to bondholders," said S&P credit analyst Michael Grande.

On Thursday, Southern Union reached an agreement with Sandell, which owns an 8.6% stake, saying one candidate nominated by Sandell would stand for election to Southern Union's board both this year and next.

Fitch changed its ratings outlook on Southern Union to stable from negative. Fitch has the company at BBB-, or one notch above junk territory, and said the rating was supported in part by Thomas E. Sandell's comments that Southern Union shouldn't undertake transactions such as the formation of a master limited partnership, divestitures or increasing dividends.

The agreement doesn't specifically mention share repurchases, which S&P said could lead to a possible downgrade given the high debt level at Southern Union. But Fitch's new ratings outlook doesn't assume buybacks will occur.

Last week, Southern Union reported its fourth-quarter net income more than doubled on tumbling natural-gas prices and was also helped by mark-to-market and tax gains. The company also issued a 2009 forecast above analysts' estimates.

Shares were down 3.8% to $12.35 in recent trading. The company's stock has lost nearly half its value during the last six months.

-By John Kell, Dow Jones Newswires; 201-938-5285; john.kell@dowjones.com

(END) Dow Jones Newswires

March 06, 2009 14:59 ET (19:59 GMT)