Moody's Raises Access Midstream (ACMP) to 'Ba2', Outlook Positive
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Moody's Investors Service upgraded Access Midstream Partners, L.P.'s (NYSE: ACMP) Corporate Family Rating (CFR) to Ba1 from Ba2. Moody's also upgraded the company's existing senior unsecured notes ratings to Ba2 from Ba3. The Speculative Grade Liquidity is unchanged at SGL-2 and the rating outlook remains positive.
"ACMP's upgrade to Ba1 reflects the company's strong execution on its growth capital spending, rising cash flows, and declining financial leverage," commented Pete Speer, Moody's Vice-President. "The partnership is also working to diversify its customer base and reduce its customer concentration with Chesapeake Energy."
Issuer: Access Midstream Partners, L.P.
..Upgrades:
....Corporate Family Rating, Upgraded to Ba1 from Ba2
.Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD
....Senior Unsecured Regular Bond/Debentures, Upgraded to Ba2, LGD4 64% from Ba3, LGD4 63%
....Senior Unsecured Shelf, Upgraded to (P)Ba2 from (P)Ba3
....Subordinated Shelf, Upgraded to (P)Ba3 from (P)B1
RATINGS RATIONALE
ACMP's Ba1 rating is supported by the stability of its substantially all fee-based revenues, contractually limited volume risk, growing scale, and broad geographic and basin diversification. The partnership continues to successfully complete its large capital spending program with meaningful equity funding which is reducing financial leverage. ACMP is targeting financial leverage (Debt/EBITDA) in the 3.5x to 4x range and distribution coverage above 1.2x, which is relatively conservative given the stability of its earnings. These positive attributes are tempered by the partnership's significant customer concentration with Chesapeake Energy (Chesapeake, Ba2 stable).
The positive outlook reflects Moody's expectation that ACMP's exposure to Chesapeake will be reduced over the next eighteen months while its cash flows continue to increase and credit metrics strengthen. Management has announced a goal of reducing the partnership's revenue exposure to Chesapeake to 50%. ACMP expects to achieve this through a combination of further asset divestitures by Chesapeake and organic expansion with other customers in the basins it operates.
The ratings could be upgraded to Baa3 if ACMP substantially achieves its goal of reduced exposure to Chesapeake while sustaining Debt/EBITDA below 4x. The ratings of Chesapeake will continue to be a meaningful consideration in ACMP's ratings even at the partnership's 50% targeted level, so increases or decreases in Chesapeake's ratings would be positive or negative to ACMP's ratings although not necessarily in lockstep. Though unlikely based on current trends, ACMP's ratings could be downgraded if the partnership's Debt/EBITDA rises over 5x because of insufficient equity funding of growth or acquisitions and/or weaker than expected earnings.
The Ba2 ratings on the senior notes reflect ACMP's overall probability of default of Ba1-PD and a loss given default of LGD 4 (64%). The partnership's $1.75 billion revolver is secured by substantially all of its assets. The outstanding senior notes are all unsecured and have subsidiary guarantees on a senior unsecured basis. Therefore the notes are subordinated to the senior secured credit facility's potential priority claim to the partnership's assets, resulting in the notes being rated Ba2, one notch beneath the Ba1 Corporate Family Rating (CFR) under Moody's Loss Given Default Methodology.
The SGL-2 rating is based on Moody's expectation that ACMP will have good liquidity into 2015. Entering 2014, the partnership had $1.4 billion availability on its committed $1.75 billion revolving credit facility that matures in May 2018. This available borrowing capacity will cover forecasted negative free cash flow into 2015, although Moody's expects ACMP to continue to execute periodic equity and senior notes issuances to maintain ample availability on the revolver. The partnership has good covenant headroom that should expand as its leverage declines and given the size and diversity of its asset base it can sell assets to raise cash.
The principal methodology used in this rating was the Global Midstream Energy Industry Methodology published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
"ACMP's upgrade to Ba1 reflects the company's strong execution on its growth capital spending, rising cash flows, and declining financial leverage," commented Pete Speer, Moody's Vice-President. "The partnership is also working to diversify its customer base and reduce its customer concentration with Chesapeake Energy."
Issuer: Access Midstream Partners, L.P.
..Upgrades:
....Corporate Family Rating, Upgraded to Ba1 from Ba2
.Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD
....Senior Unsecured Regular Bond/Debentures, Upgraded to Ba2, LGD4 64% from Ba3, LGD4 63%
....Senior Unsecured Shelf, Upgraded to (P)Ba2 from (P)Ba3
....Subordinated Shelf, Upgraded to (P)Ba3 from (P)B1
RATINGS RATIONALE
ACMP's Ba1 rating is supported by the stability of its substantially all fee-based revenues, contractually limited volume risk, growing scale, and broad geographic and basin diversification. The partnership continues to successfully complete its large capital spending program with meaningful equity funding which is reducing financial leverage. ACMP is targeting financial leverage (Debt/EBITDA) in the 3.5x to 4x range and distribution coverage above 1.2x, which is relatively conservative given the stability of its earnings. These positive attributes are tempered by the partnership's significant customer concentration with Chesapeake Energy (Chesapeake, Ba2 stable).
The positive outlook reflects Moody's expectation that ACMP's exposure to Chesapeake will be reduced over the next eighteen months while its cash flows continue to increase and credit metrics strengthen. Management has announced a goal of reducing the partnership's revenue exposure to Chesapeake to 50%. ACMP expects to achieve this through a combination of further asset divestitures by Chesapeake and organic expansion with other customers in the basins it operates.
The ratings could be upgraded to Baa3 if ACMP substantially achieves its goal of reduced exposure to Chesapeake while sustaining Debt/EBITDA below 4x. The ratings of Chesapeake will continue to be a meaningful consideration in ACMP's ratings even at the partnership's 50% targeted level, so increases or decreases in Chesapeake's ratings would be positive or negative to ACMP's ratings although not necessarily in lockstep. Though unlikely based on current trends, ACMP's ratings could be downgraded if the partnership's Debt/EBITDA rises over 5x because of insufficient equity funding of growth or acquisitions and/or weaker than expected earnings.
The Ba2 ratings on the senior notes reflect ACMP's overall probability of default of Ba1-PD and a loss given default of LGD 4 (64%). The partnership's $1.75 billion revolver is secured by substantially all of its assets. The outstanding senior notes are all unsecured and have subsidiary guarantees on a senior unsecured basis. Therefore the notes are subordinated to the senior secured credit facility's potential priority claim to the partnership's assets, resulting in the notes being rated Ba2, one notch beneath the Ba1 Corporate Family Rating (CFR) under Moody's Loss Given Default Methodology.
The SGL-2 rating is based on Moody's expectation that ACMP will have good liquidity into 2015. Entering 2014, the partnership had $1.4 billion availability on its committed $1.75 billion revolving credit facility that matures in May 2018. This available borrowing capacity will cover forecasted negative free cash flow into 2015, although Moody's expects ACMP to continue to execute periodic equity and senior notes issuances to maintain ample availability on the revolver. The partnership has good covenant headroom that should expand as its leverage declines and given the size and diversity of its asset base it can sell assets to raise cash.
The principal methodology used in this rating was the Global Midstream Energy Industry Methodology published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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