S&P Revises Recovery Rating on Atlas Pipeline Partners (APL); Outlook Remains Stable

Standard & Poor's Ratings Services said it revised the recovery rating on the unsecured debt of Atlas Pipeline Partners L.P. (NYSE: APL) to '4' from '3'. At the same time, we affirmed the 'B+' issuer credit rating, as well as the 'B+' issue rating on the unsecured debt. The outlook is stable.

We consider Atlas' business risk profile to be "fair." Its operations have compelling drilling economics due to their location, characterized by high utilization (about 93% to date in 2014) and strong gathering and processing volumes across the firm's operating footprint.

"The partnership continues to grow at a rapid pace in tandem with robust production forecasts and we expect 2014 gathering volumes to be nearly three times greater than those of 2011," said Standard & Poor's credit analyst Michael Ferguson.

Despite favorable drilling fundamentals, large acquisitions and several expansions have stretched Atlas' balance sheet. A slower-than-anticipated build-out of assets, meaningful amounts of ethane rejection, and the need to offload gathering volumes to third parties has contributed to compressed margins and lower cash flow, but we believe this will partially abate during the latter half of 2014.

The stable outlook reflects our expectation that Atlas' key credit measures will stabilize over the next few years. We could raise the rating if Atlas successfully executes its 2014 growth strategy, maintains adequate liquidity, and reduces leverage below 4x for a sustained period. We could lower the rating if low commodity prices, stagnant throughput levels, or operational difficulties result in tight liquidity and/or debt to EBITDA over 5x through the end of 2015.

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