MPLX LP (MPLX) Ratings Affirmed by Fitch Following MarkWest Merger Announcement

Fitch Ratings has affirmed MPLX LP's (NYSE: MPLX) Issuer Default Rating (IDR) and senior unsecured debt rating at 'BBB-' following the partnership's announcement to merge with MarkWest Energy Partners, L.P. (MarkWest). The Rating Outlook is Stable.

MPLX has offered to merge with MarkWest in a unit for unit transaction, plus a cash payment to MarkWest unitholders. The total transaction is valued at approximately $20 billion. MPLX's sponsor, Marathon Petroleum Corp. (MPC; IDR 'BBB' with a Stable Outlook by Fitch) plans to contribute $675 million of cash to MPLX for the cash payment to MarkWest unitholders. MPLX will assume MarkWest's $4.2 billion of debt. Fitch does not currently rate MarkWest and once the deal is consummated, Fitch assumes that MarkWest's debt will be rated the same as MPLX at 'BBB-'. The transaction is subject to a MarkWest unitholder vote, and other customary and regulatory approvals. The deal is expected to close during the fourth quarter of 2015.

KEY RATING DRIVERS

Factors that support the rating include MPLX's strategy to continue to operate with low leverage for a 'BBB-' rating. The partnership targets leverage (defined as debt to last quarter's annualized EBITDA) at approximately 4.0x. Once the transaction is closed, MPLX will benefit from increased size and scale as well as greater diversity of assets. MPLX's primary assets are the majority interest in crude oil and refined product pipelines as well as storage assets in the Midwest and Gulf Coast. MarkWest is a large gatherer and processor with a significant presence in the Marcellus and Utica. It is the second largest gas processor in the U.S. and it processes approximately 75% of the rich gas produced in the Marcellus and Utica.

On a pro forma basis, MPLX forecasts 2015's expected EBITDA of $1.25 billion and over 90% of net operating margins would come from fee-based arrangements. The partnership still expects to maintain a high distribution growth rate. For 2015, it forecasts 29% growth and 25% or better growth through 2017.

With the pending transaction, MPLX has delayed the dropdown of marine assets from MPC. Previously, those assets were to be dropped down during 2015. The merger with MarkWest will enable MPC to postpone dropdowns ensuring that a large inventory of midstream assets which generate $1.6 billion of EBITDA annually are available at a later date to drive future growth.

MarkWest has significant organic projects which will now be funded at MPLX's lower cost of capital and will provide MPLX with growth. MarkWest estimates it has approximately $1.5 billion of capex spending per year over the next five years.

The rating is further supported by MPLX's sponsor, MPC which owns a 69.5% limited partnership interest and the 2% general partner interest. Once the deal is completed, MPC will continue to own the 2% general partner interest and approximately 19% of the limited partnership units. In 2012, MPLX was created as a growth vehicle for MPC's midstream assets. Long-term fee-based contracts with MPC should provide MPLX with stable cash flows. Furthermore, its assets are integral for MPC and historically MPC has accounted for over 85% of pipeline volumes. Prior to the announced merger, MarkWest projected 90% of its net operating margins were to come from fee-based arrangements in 2015. Approximately 75% of its 2015 operating income was expected to come from the Marcellus and Utica. Once the transaction is completed, MLPX forecasts 90% of operating margins are to come from fee-based arrangements.

Future growth for MPLX will come from its own growth projects which are underway, MarkWest's significant growth projects and the future dropdown of midstream assets from MPC, which has a significant inventory of assets while also developing new ones. The partnership plans to operate with strong distribution coverage which was 1.2x in 2014 and is targeted at 1.1x for the long term.

Concerns include MPLX's strategy to grow at a fast pace. Plans are for the distribution growth rate to be 25% or greater through 2017, although Fitch believes that MPLX has the ability to reduce future growth should market conditions warrant a slower trajectory. Other ratings concerns are MPLX's significant customer concentration with MPC; however, MPC has a strong credit profile and its reliance on MPC will decrease with the merger. MPLX's rating is restricted by its dependence on its sponsor meaning, MPLX would not be rated above MPC. MPLX has strong operational, financial and strategic ties with MPC. MPLX is notched down one from its sponsor based on MPLX's standalone credit profile which Fitch does not view as strong as MPC's.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:
--Financing for the proposed transaction is completed as planned.
--No additional debt is issued to finance the deal.
--Dropdowns from MPC to MPLX are delayed and provide future growth.
--Funding for the combined new entity is managed in a prudent manner which keeps the balance sheet strong.
--MPLX maintains leverage of approximately 4.0x on a long term basis.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Reduced leveraged (as defined by Fitch) below 4.0x over a sustained period of time;
--Favorable rating action at MPC.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--Significantly reduced volume commitments from MPC which could occur as contracts come up for renewal;
--Increases in capital spending or dropdowns beyond Fitch's expectations that have negative consequences for the credit profile (e.g., if not funded with a balance of debt and equity);
--Increased adjusted leverage (as defined by Fitch) beyond 5.0x for a sustained period of time (although allowing for temporary increases as a result of acquisitions);
--Negative rating action at MPC.

LIQUIDITY

Liquidity at MPLX is sufficient and it is expected that the partnership would increase the size of its revolver once the MarkWest merger is completed. As of March 31, 2015, MPLX had $133 million of cash on the balance sheet. In addition, it had full availability on its $1 billion senior unsecured revolver which extends until 2019. The revolver was extended and upsized from its original size of $500 million in November 2014. The bank agreement restricts leverage from exceeding 5.0x unless MPLX qualifies for being in an acquisition period. In that case, leverage cannot exceed 5.5x for two consecutive quarters. Like other MLP bank agreements, MPLX receives pro forma EBITDA adjustments for material projects and acquisitions for its leverage calculation.

There are no debt maturities at the combined entity until 2019 when MPLX has a $250 million term loan due.

FULL LIST OF RATINGS

Fitch affirms the following:

MPLX LP
--Long-term IDR at 'BBB-';
--Senior unsecured debt at 'BBB-'.

The Rating Outlook is Stable.

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