S&P Lowers Outlook on Enable Midstream Partners (ENBL) to Negative; Notes Pressured Hydrocarbon Prices
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Standard & Poor's Ratings Services affirmed its 'BBB-' corporate credit and senior unsecured debt ratings on Enable Midstream Partners L.P. (NYSE: ENBL) (Enable) and revised the outlook to negative from stable.
"The outlook revision reflects our view that continued hydrocarbon pricing pressure could further erode Enable's cash flow gross margins and gathering volumes, resulting in lower cash flow to the partnership," said Standard & Poor's credit analyst Mike Llanos. In addition, we assume Enable's low unit price makes it prohibitively expensive to raise equity and fund its 2016 capital spending program in a balanced manner. While roughly 55% of projected gross margin comes from firm take-or-pay cash flow or is underpinned by minimum volume commitments, roughly 30% is fee-based with volumetric risk and about 10% is unhedged and exposed to weak commodity prices. In our view, the roughly 60% of EBITDA that comes from the gathering and processing business segment has higher credit risk than the more stable cash flows from the transportation and storage business. In our view, weak commodity prices could lead to volumetric declines that exceed our forecasts which, combined with
Enable's low unit price, could lead to adjusted debt to EBITDA remaining above our downgrade trigger of 4x for an extended period of time.
The negative outlook reflects our expectation that Enable's credit measures could weaken further from lower volumes and low commodity prices, such that debt to EBITDA remains above 4x in 2016. We also believe that challenging capital market conditions could make it difficult to issue equity to keep financial leverage below our downgrade trigger.
We could lower the ratings if cash flow declines due to lower volumes or weak commodity prices, such that debt to EBITDA remains in the 4.0x to 4.5x range for a sustained period of time. We could also lower the rating if Enable's commodity exposure increases, the partnership encounters operational setbacks, or cost overruns related to growth capital projects cause financial leverage to increase above our downgrade trigger.
We could revise the outlook to stable if we believe that the partnership can maintain debt to EBITDA below 4x in the face of lower commodity prices and heightened volume risk.
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