Piedmont Natural Gas (PNY) Placed on CreditWatch Negative by S&P Following Duke Energy Deal

Standard & Poor's Ratings Services placed its ratings on Piedmont Natural Gas Co. Inc. (NYSE: PNY), including the 'A' issuer credit rating, on CreditWatch with negative implications as a result of the company's agreement to be acquired by Duke Energy Corp.

"The CreditWatch negative placement on Piedmont Natural Gas Co. Inc. [Piedmont] is based on the company's agreement to be acquired by Duke Energy Corp. [Duke]," said Standard & Poor's credit analyst Dimitri Nikas. We currently rate Duke one notch lower than Piedmont.

Upon the successful close of the acquisition, we expect to view Piedmont as a "core" subsidiary of Duke, leading to our issuer credit rating on Piedmont being aligned with the then group credit profile of Duke. This assessment reflects the following:

• We expect that Piedmont will form a meaningful part of the merged entity, contributing about 5% of total operating income.
• Piedmont and Duke will have enhanced presence in North Carolina, facilitating growth and cost reduction opportunities.
• Both companies' service territories demonstrate above-average customer growth and both companies benefit from constructive regulatory frameworks.
• Piedmont operates in lines of business that are integral to the overall group strategy (regulated utility operations).
• We expect Duke's senior management will demonstrate strong commitment to Piedmont given Duke's emphasis on maintaining the size and scope of its regulated utility operations relative to the nonutility operations.

The ratings on Piedmont Natural Gas Co. are on CreditWatch with negative implications reflecting the prospect for lower ratings as a result of the company's agreement to be acquired by Duke Energy Corp. We expect to resolve the CreditWatch listing on Piedmont by the transaction close which could be by year-end 2016.

We could lower the ratings on Piedmont upon the close of the acquisition by Duke, aligning our credit ratings on Piedmont and Duke.

In the absence of regulatory or structural insulation measures that would protect Piedmont from Duke after the close of the transaction, we could affirm the existing ratings on Piedmont only if the acquisition by Duke does not materialize.

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