Moody's downgrades Targa Resources

Moody's Investors Service said it downgraded Targa Resources Inc.'s corporate family and probability-of-default ratings to B1 from Ba3, senior secured bank facilities to B1 (LGD3, 49%) from Ba3 and 8½% senior unsecured notes due 2013 to B3 (LGD6, 93%) from B2.

This action concludes the ratings review begun on April 10 that was prompted by the possibility that the company's proposed sale of its North Texas assets might not occur in a timely manner. The asset sale has not occurred and Moody's believes that a sale in the near term is no longer likely. Targa continues to review other monetization strategies for the assets; however, these strategies will likely require a significant amount of time to execute and would not be as potentially credit accretive as a straight sale, the agency said.

The outlook is negative, reflecting the possibility of a further downgrade should the company not follow through with plans to reduce leverage to more manageable levels. Moody's expects Targa to end the year with a debt to EBITDA ratio of between 5.6 times and 6 times. Targa's annualized cash interest expense is $165 million, which puts EBITDA to interest in the 2.1 times to 2.4 times range. The agency said that in order to return to a stable rating outlook, Targa would need to reduce debt to EBITDA to less than 5 times.

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