Enterprise Products Partners (EPD) Ratings Affirmed by S&P
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Standard & Poor's Ratings Services said it affirmed its 'BBB+' corporate credit and senior unsecured ratings and 'A-2' short-term rating on Enterprise Products Partners (NYSE: EPD) following its announcement that it has acquired crude oil and refined products logistics partnership Oiltanking Partners L.P. for $4.4 billion. The outlook is stable.
"The rating action reflects our view that the transaction offers meaningful strategic benefits to EPD's future growth plans and that the partnership's credit measures will largely remain unchanged pro forma for the transaction," said Standard & Poor's credit analyst Aneesh Prabhu.
We believe Oiltanking's marine terminal assets hold a unique and coveted position on the Houston Ship Channel, enhance the partnership's access to waterborne markets, and are important to the partnership's plans to grow liquefied petroleum gas exports and its refined products and petrochemicals businesses.
Furthermore, we view integration risk to be minimal because EPD's Mont Belvieu and ECHO crude oil facilities are connected with these assets and EPD currently accounts for about 30% of Oiltanking's revenue and 40% of its EBITDA. Oiltanking has about 24 million barrels of crude oil and refined product storage and 12 ship and barge docks on the Houston Ship Channel and at the Port of Beaumont. Also, the company's contract structure is 100% fee-based with an average tenor of more than three years, which supports credit. Pro forma for the transaction, we expect credit measures to remain strong, with total debt to EBITDA of 3.9x, EBITDA to interest of 4.7x, and distribution coverage of 1.3x at year-end 2014.
The stable outlook reflects our expectation that EPD will maintain a solid competitive position with minimal commodity risk and strong credit measures, and keep financial leverage below 4x.
We could revise the outlook to negative if debt to EBITDA increased to about 4.5x on a sustained basis, which could occur if the partnership funds its growth projects and acquisitions with more debt.
We do not foresee higher ratings unless there is a notable and sustained reduction in EPD's financial risk profile (specifically, debt to EBITDA sustained at about 3x to 3.5x), an increase in fee-based cash flows to more than 90% of EBITDA, and changes in its financial policy to promote the retention of more cash flow and distribution coverage at least 1.5x.
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