September 17, 2012 / 9:13 PM / 5 years ago

TEXT-Fitch affirms MidAmerican Energy Holdings, and subs ratings

Sept 17 - Fitch Ratings has affirmed MidAmerican Energy Holdings Company's
 (MEHC) long-term Issuer Default Rating (IDR) at 'BBB+' and its
short-term IDR at 'F2'. MEHC's individual security ratings have also been
affirmed. The Rating Outlook is Stable.

Fitch has also affirmed all the IDRs and individual security ratings on the
following MEHC subsidiaries: MidAmerican Funding, LLC (MF); MidAmerican Energy
Company (MEC); PacifiCorp (PPW); Kern River Funding Corporation (KRF); and
Northern Natural Gas Company (NNG).

Fitch has revised NNG's Rating Outlook to Negative from Stable. The Outlook on
MEHC's other subsidiaries remains Stable.

A complete list of all rating actions is provided at the end of this release.

Approximately $20.4 billion of debt is affected by these rating actions.

NNG's Outlook Revision:

The revision of NNG's Outlook to Negative from Stable reflects Fitch's
expectations for debt to EBITDA to remain greater than 2.8x. The weakening of
this leverage metric over the past few years has been partly due to the
reduction in natural gas prices and narrowing of basis differentials, which has
negatively impacted interruptible transportation prices. In addition, the
uncertainty resulting from changing North American natural gas supply dynamics
has somewhat lessened the competitive stronghold of pipelines such as NNG that
are sourced from the more traditional supply basins.

A downgrade of NNG's ratings would likely occur if the company does not decrease
its debt to EBITDA metric below 2.5x on a sustainable basis under Fitch's
financial projections.

Key Rating Factors:

--The underlying financial strength and relative predictability of MEHC's core
U.S.-based electric utility and natural gas pipeline companies and U.K. electric
distribution utilities;
--The salutary financial effects of MEHC's affiliation with Berkshire Hathaway
Inc. (BRK; IDR 'AA-' with a Stable Outlook);
--Moderately high consolidated debt leverage;
--Regulatory outcomes in pending and future rate case proceedings;
--MEC, PPW, KRF, and NNG have been ring-fenced by special purpose entities to
preserve the credit quality of each operating company.

Diversified Stable Businesses:

MEHC's ratings and Stable Outlook reflect the company's stable cash flows from
five relatively low-risk regulated utilities and natural gas pipelines located
in the U.S. and U.K. The company's U.S. renewable energy operations also provide
a good financial return and platform for growth.

The electric and gas utility operations of PPW and MEC are diversified across
several states and geographic regions, limiting exposure to any one regulatory
jurisdiction or to the effects of extreme weather. NNG's pipeline operations
provide essential natural gas supply under long-term contracts to utilities in
the Midwest, and Kern River Gas Transmission Company (KRGT; parent of KRF)
serves growing areas in Salt Lake City, southern Nevada, and Southern and
Central California.

Affiliation with Berkshire Hathaway:

MEHC's ratings also reflect BRK's 90% ownership of the company and its strategic
commitment to use MEHC to expand its investments in power and gas assets. Fitch
views MEHC's affiliation with BRK as being beneficial to MEHC's credit quality,
mitigating concern about MEHC's moderately high consolidated financial leverage
and large consolidated capital expenditure program.

BRK has opportunistically provided capital and financing to MEHC to pursue
acquisitions, including the PacifiCorp (PPW) acquisition in March 2006 and the
attempted Constellation Energy Group (CEG) acquisition in 2008. MEHC's CEG
acquisition bid was ultimately rejected, but as a result of the termination of
the transaction MEHC received net cash proceeds of approximately $725 million.

Unlike most utility holding companies, MEHC benefits significantly from capital
retained as the direct result of BRK's financial strength, which obviates the
need to upstream dividends.

In addition, MEHC and BRK have a $2 billion equity commitment agreement (ECA)
through February 2014. ECA equity contributions may only be used for the purpose
of paying MEHC debt obligations when due and funding the general corporate
purposes and capital requirements of MEHC's regulated subsidiaries.

Moderately High Consolidated Debt Leverage:

MEHC's consolidated financial metrics are relatively weak compared to similarly
rated companies. For 2011, MEHC's funds flow from operations (FFO) to debt was
16.2% and its debt to EBITDA was 5.1x.

Fitch expects these leverage metrics to remain roughly at these levels through
2013, before improving in 2014 following the conclusion of significant capital
expenditure projects at the utilities and recovery of these expenditures through
rate case filings. Fitch expects MEHC's FFO to debt to strengthen to around 17%
in 2014 and debt to EBITDA to improve to around 4.5x.

Growth in EBITDA and FFO from utility projects along with the current low
interest rate environment should result in improvements to interest coverage
metrics. Fitch projects EBITDA interest coverage to approach 4x by 2014, from
3.3x at 2011, and FFO interest coverage to also be around 4x in 2014, from 3.7x
in 2011.

Good Liquidity:

MEHC's liquidity position is good, with $880 million of cash and cash
equivalents on its consolidated balance sheet as of June 30, 2012, and
sufficient availability under the revolving credit facilities of the parent and
each subsidiary.

In addition, MEHC's equity credit agreement with BRK, as described above,
provides up to $2 billion through February 2014. The consolidated company has
roughly $2.7 billion of long-term debt scheduled to mature in the years
2013-2015, which Fitch views to be a manageable amount of near-term maturities
given the scale and strength of MEHC's consolidated operations.

MF and MEC:

Fitch's affirmation of MF's 'BBB+' long-term IDR and MEC's 'A-' long-term IDR
reflects MEC's relatively low business risk profile and solid credit metrics.
The ratings also consider the utility's constructive Iowa regulatory

Commodity price risk at MEC is mitigated by the utility's long generating
capacity position. However, the combined effects of cyclical downturn and a
prolonged recovery and low wholesale power prices and off-system sales have
pressured MEC's operating results.

MF is an intermediate holding company that is a wholly owned subsidiary of MEHC
and the indirect parent of MEC. MF's ratings are based on the credit quality of
MEC, which is the primary source of cash flow to service its debt obligations
and also benefits from the support of its ultimate corporate parent, BRK.


The affirmation of PPW's 'BBB' long-term IDR considers the company's solid
financial position, competitive resource base, and relatively balanced and
diversified regulatory environment.

The current ratings and Stable Outlook assume PPW continues to benefit from
parent company support and reasonable outcomes in pending and future rate
proceedings to recover anticipated, significant capital investment.

Rating concerns for PPW investors include execution and recovery of its capex
program. Emergence of more stringent environmental rules and regulations are
also a concern.


Fitch's affirmation of KRF's 'A-' long-term IDR reflects the pipeline's
relatively predictable and strong earnings and cash flow metrics, reasonable
regulatory oversight, and manageable capital expenditure plans. KRF is a
financing vehicle for the long-term debt obligations of KRGT.

KRF's debt is unconditionally guaranteed by KRGT, which owns and operates a
1,700 mile interstate pipeline delivering primarily Rocky Mountain gas from
Wyoming to markets in Utah, Nevada, and California. Customers are under
long-term contracts, and the pipeline has access to relatively low-cost natural
gas supply and a solid operating track record.

KRF's 'A-' rating reflects KRF/KRGT's standalone credit quality as the result of
specific legal and structural separations from its parent, MEHC.


The affirmation of NNG's 'A' long-term IDR reflects the pipeline's strong
business profile as an essential supplier of natural gas to many Midwest
utilities under long-term contracts, favorable operating characteristics, and
low regulatory risk. However, NNG's weakened debt leverage metrics, as
previously discussed, place strain on the company's credit ratings.

NNG's competitive position is strong, with access to five major supply basins
and a customer base primarily comprised of local distribution companies. NNG's
competitive pressures are mitigated by the pipeline's stable customer base and
geographic location.

Fitch has affirmed the following ratings with a Stable Outlook:

MidAmerican Energy Holdings Company (MEHC)
--Long-term IDR at 'BBB+';
--Senior unsecured debt at 'BBB+';
--Preferred stock at 'BBB-';
--Short-term IDR at 'F2'.

MidAmerican Funding, LLC (MF)
--Long-term IDR at 'BBB+';
--Senior secured debt at 'A-'.

MidAmerican Energy Company (MEC)
--Long-term IDR at 'A-';
--Senior unsecured debt at 'A';
--Preferred stock at 'BBB+';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.

PacifiCorp (PPW)
--Long-term IDR at 'BBB';
--Senior secured debt at 'A-';
--Senior unsecured debt at 'BBB+';
--Preferred stock at 'BBB-';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.

Kern River Funding Corporation (KRF)
--Long-term IDR at 'A-';
--Senior unsecured debt at 'A-'.

Fitch has affirmed the following ratings and revised the Outlook to Negative
from Stable:

Northern Natural Gas Company (NNG)
--Long-term IDR at 'A';
--Senior unsecured debt at 'A'.

Rating Triggers

MEHC: Given the moderately high debt leverage of the consolidated entity, a
positive rating action on MEHC is remote. A negative rating action on MEHC is
unlikely, but could occur if FFO to debt were to decrease and be sustained below
16%. In addition, a negative rating action on MEHC would likely occur if there
were a meaningful change in the relationship with owner BRK.

MF and MEC: The one-notch separation in long-term IDRs between MF and MEC is due
to the extra layer of debt held at MF. If MF were to redeem its parent-level
debt, its long-term IDR would likely be upgraded to that of MEC. Otherwise, a
positive rating action on MF and MEC is remote, due to the already strong
ratings of MEC. A negative rating action on either entity could occur if FFO to
debt were to decrease and be sustained below 20%.

PPW: A positive rating action on PPW could occur if FFO to debt were to increase
and be sustained near 20%. A negative rating action on PPW could occur if FFO to
debt were to decrease and be sustained below 16%.

KRF: A positive rating action on KRF is remote given the company's strong
rating, the pipeline's limited scope, and competitive pressures on the system. A
negative rating action is also unlikely at this time.

NNG: A positive rating action on NNG is remote, given the aforementioned
negative pressures on the credit rating. A ratings downgrade would be likely if
NNG's debt to EBITDA is not decreased below 2.5x under Fitch's financial

Additional information is available at ''. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Utilities' (May 3, 2012);
--'Rating North American Utilities, Power, Gas, and Water Companies' (May 16,

Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Recovery Ratings and Notching Criteria for Utilities
Rating North American Utilities, Power, Gas, and Water Companies

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