Moody's Reaffirms Ratings on MPLX LP (MPLX) Following MarkWest Energy Acquisition Announcement

Moody's Investors Service (Moody's) affirmed MPLX LP's (NYSE: MPLX) Baa3 senior unsecured rating following its announcement on July 13 that it had agreed to acquire MarkWest Energy Partners, L.P. (MWE, Ba2 RUR-up) in an all units transaction valued at approximately $20.0 billion. MPLX's outlook is stable. The rating of Marathon Petroleum Corporation (MCP, Baa2 stable), MPLX's general partner (GP) is unaffected by this announcement.

"The proposed acquisition of MWE will afford MPLX the significantly increased operating size and scale that was heretofore lacking, although Moody's views MWE's natural gas gathering and processing (G&P) operations as weakening MPLX's consolidated business risk profile while diluting the strategic and highly integrated relationship between MPLX and MPC which had otherwise underpinned MPLX's Baa3 rating," commented Andrew Brooks, Moody's Vice President. "However, with almost 90% of MWE's operating margin fee-based, a leading presence in the rapidly growing Marcellus Shale and a commitment to maintaining consolidated debt leverage no higher than 4x, Moody's regards MPLX's acquisition of MWE as supportive of a Baa3 stand-alone rating."

Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

Outlook Actions:

....Outlook, Remains Stable

RATINGS RATIONALE

MPLX functions as the principal vehicle to expand MPC's existing midstream asset footprint, much of which is strategically located near the prolific Utica and Marcellus Shale plays, and which afford access to advantaged domestic crude oil and natural gas supplies. Highly visible prospects for future growth, size and scale representing up to $1.6 billion of EBITDA is embedded in MPC's midstream assets, a substantial portion of which are available to MPLX through future asset dropdowns. However, these presumed dropdowns have now been deferred as a result of the proposed MWE acquisition. As a result of the acquisition, MWE's G&P operations would contribute on a pro forma basis over 70% of MPLX's consolidated 2015 EBITDA.

Additionally, although MPC will retain its 2% GP interest (contributing $298 million to MPLX to maintain its 2% GP interest) its ownership of MPLX on a limited partnership basis will be materially diluted down to 19% from its 69.5% stake (as of March 31) reflecting the financing of the transaction on an all-units basis. Both the integrated relationship with MPC and the extent of MPC's ownership stake in MPLX had figured prominently in the one-notch of uplift to Baa3, which the MWE transaction will now enable MPLX to achieve on a stand-alone basis.

MPLX's stable outlook reflects the high degree of fee-based EBITDA generated by both its and MWE's rapidly expanding asset bases, notwithstanding the significantly sized step-out into natural gas G&P from the integrated and strategic logistics focus with MPC which has defined its Baa3 rating since inception. While a rating upgrade is unlikely in the near-term, the added size and scale afforded by the MWE acquisition will help MPLX's evolution into a Baa3 stand-alone entity, obviating the necessity of ratings uplift from MPC. An upgrade of MPLX's rating could be considered should EBITDA approach $1.75 billion, presuming no further deterioration in business risk profile, with sustained leverage under 4x. An upgrade of MPC's Baa2 rating would likely not prompt an upgrade in MPLX's rating. MPLX's ratings could be downgraded if debt/EBITDA exceeds 4.5x, should transaction execution or integration risk disrupt operations or cash flow, or should MPLX's significant move into natural gas G&P increase volumetric or commodity price volatility in its margins and cash flow streams.

Organizationally, MPLX intends to operate MWE as a wholly owned subsidiary, retaining key MWE operating personal and expertise to support the rapidly growing scope of MWE's G&P operations. The acquisition of the much larger MWE by MPLX will, however, inevitably introduce integration and execution risk to the combined entities post-closing operating profile.

MPLX will assume MWE's $4.2 billion of debt, and based on approximately $1.25 billion of pro forma 2015 EBITDA, consolidated leverage will rise to about 4.3x (including Moody's standard adjustments). MPLX has targeted leverage on a go-forward basis of 4.0x (the equivalent of Moody's 4.3x adjusted leverage). With MWE projecting approximately $1.5 billion of annual growth capital spending through 2020, and midstream assets capable of generating $1.6 billion of EBITDA remaining embedded within MPC and available for future dropdowns, Moody's assumes that growth will be financed on a balanced basis of debt and equity to prevent leverage from exceeding this level.

MWE is continuing a very large growth-based capital expenditure program, resulting in significantly increased EBITDA since its formation in 2002. The second largest processor of natural gas and the fourth largest fractionator of natural gas liquids (NGLs) in the US, MWE is a leader in processing and fractionation capacity in the Marcellus and Utica Shale, which affords a degree of joint growth and vertical integration opportunities with MPLX and MPC. Almost 90% of MWE's operating margin is fee-based, reducing its exposure to commodity price risk and is supported by a high preponderance of acreage dedications.

However, MWE's rapid growth has strained the company's liquidity, which features a revolving credit facility whose usage has sometimes been constrained by financial covenants and is too small to fully meet the company's funding requirements and has resulted in a high reliance on equity and debt capital markets to fund growth capital. While MWE's growth capital needs remain substantial, combining with MPLX and its large, supportive Baa2 rated sponsor should enhance market access for the funding of this growth.

MPLX's asset base is dominated by a system of FERC-regulated crude oil and product pipelines that are interconnected with, and support the operations of MPC's seven refineries, a logistics asset base which is integral to MPC's refining operations. The substantial majority of MPLX's revenue is generated under long term fee-based contracts with MPC, which accounted for 91% of MPLX's 2014 revenues. MPC has historically accounted for over 80% of the throughput volumes transported on MPLX's pipelines. MPLX's Baa3 rating reflects a one-notch uplift from MPLX's strategic importance to MPC, a function of the critical infrastructure MPLX provides to MPC's integrated refining network, and their coordinated growth strategy.

The principal methodology used in this rating was Global Midstream Energy published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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