S&P Assigns 'B' Rating to Southcross Energy Partners (SXE); Sees 'Weak' Business Risk Profile

Standard & Poor's Ratings Services said today it assigned its 'B' corporate credit rating to Southcross Energy Partners L.P. (NYSE: SXE).

At the same time, we assigned a 'B' issue-level rating and a '3' recovery rating to the $450 million term loan facility due 2021 and $120 million senior secured revolving credit facility due 2019. We expect the partnership to use net proceeds of the term loan to partially fund the purchase of the Rich Gas System from its parent, Southcross Holdings L.P., and to pay down the balance of its existing revolving credit facility. The '3' recovery rating indicates that lenders can expect meaningful (50% to 70%) recovery of principal if a payment default occurs. The outlook is stable.

"Our ratings on Southcross reflect our assessment of its 'weak' business risk profile and 'aggressive' financial risk profile," said Standard & Poor's credit analyst Stephen Coscia.

The "weak" business risk profile reflects the partnership's limited scale and geographic scope, which is only partially offset by its high percentage of fee-based cash flow. Our assessment of the "aggressive" financial risk profile primarily reflects our expectation that debt to EBITDA will be relatively high, in the mid-4x range before modestly decreasing to about 4x in 2015 and 2016. In addition, the master limited partnership structure poses credit constraints in that the partnership is highly motivated to pay out the vast majority in free cash flow (after maintenance capital spending) to unitholders each quarter.

The stable outlook reflects our expectation that Southcross will maintain adequate liquidity while successfully ramping up the business with the acquisition of the Rich Gas System, which would result in adjusted debt-to-EBITDA at about 4x.

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