Fitch Rates Spectra Energy Partners, LP Unsecured Notes 'BBB'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB' rating to Spectra Energy Partners, LP (SEP) offering of senior unsecured notes. Proceeds from the notes will be used to repay all or a portion of outstanding commercial paper, to fund capital expenditures and for general partnership purposes. Fitch currently rates SEP's Issuer Default Rating (IDR) 'BBB'. The Rating Outlook is Stable.

KEY RATINGS DRIVERS

Stable, Predictable Cash Flows: SEP's ratings reflect the earnings and cash flow stability driven by SEP's high percentage of fee-based and capacity reservation revenue derived from the company's operations.

Large-Scale Capex Program: The ratings consider that SEP is pursuing a large-scale capital expenditure program and that credit metrics could exhibit some weakness on an interim basis as large-scale projects are constructed. Fitch believes that the inherent risks of the capital program, however, are partially mitigated by the focus on pipeline projects, which are generally backed by firm capacity commitments under long-term contracts.

Capex Weighs on Metrics: Fitch believes SEP's new core assets will provide the stability needed to maintain credit quality, and the incremental EBITDA provided as growth projects come online will result in improved metrics, more in line with peers. Fitch expects debt-to-adjusted EBITDA for SEP to be between 4x to 4.5x for 2015, assuming balanced debt and equity funding of the expected growth projects. Should leverage be expected to remain above 4.5x on a sustained basis Fitch would likely take a negative rating action. Fitch typically adjusts EBITDA to remove earnings in unconsolidated investments but include distributions from them.

Adequate Liquidity Position and Financial Flexibility: SEP liquidity and financial flexibility remains adequate. As of Dec. 31, 2014, SEP had roughly $1.1 billion in availability under its $2 billion revolving credit facility. Maturities are manageable. SEP's credit facility contains a covenant that requires SEP to maintain a ratio of total debt-to-adjusted EBITDA, as defined in the credit agreement, of 5x or less. This ratio was 3.7x as of Dec. 31, 2014.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--WTI oil price that trends up from $50/barrel in 2015 to $60/barrel in 2016 and a long-term price of $75/barrel; and Henry Hub gas that trends up from $3/mcf in 2015 to $3.25/mcf in 2016 and a long-term price of $4.50/mcf consistent with Fitch's published Base Case commodity price deck.

--Moderate revenue growth on existing assets.

--Balanced funding of growth capital spending and acquisitions.

RATINGS SENSITIVITIES:

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Sustained worsening of credit ratios due to increased leverage or poor operating performance. Distribution coverage at SEP below 1x and sustained leverage above 4.5x would likely lead to a negative rating action.

--Significant speculative building or large-scale leveraging third-party acquisitions,

--Any change in management's stated plan to fund growth with balance of debt and equity with a bias towards more debt funding.

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Improvement of leverage metrics. A SEP sustained leverage between 3 and 3.5x would likely lead to a one-notch upgrade.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Relevant Research:

--'2015 Outlook: Natural Gas Pipelines (Stability Despite Price Uncertainty)' (December 2014);

--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter 2014' (December 2014);

--'MLP End Game (Common Goals - Divergent Strategies)' (November 2014);

--'Bakken Shale Report (Prolific Production Prompts New Pipelines)' (October 2014);

--'What Investors Want to Know: Pipelines, Midstream and MLPs' (October 2014);

--'Midstream Spending Significantly Rising for MLPs and C-Corps' (August 2014);

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 2014)';

--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors' (January 2014).

Applicable Criteria and Related Research:

2015 Outlook: Natural Gas Pipelines (Stability Despite Price Uncertainty)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=839208

Rating Pipelines, Midstream and MLPs -- Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Midstream Spending Significantly Rising for MLPs and C-Corps

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=759467

What Investors Want to Know: Pipelines, Midstream and MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=785149

Bakken Shale Report (Prolific Oil Production Prompts New Pipelines)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=783488

MLP End Game (Common Goals -- Divergent Strategies)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=802308

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980984

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Peter Molica
Senior Director
+1 212-908-0288
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Charles LaPorta
Director
+1 212-612-7856
or
Committee Chairperson
Mark C. Sadeghian, CFA
Senior Director
+1 312-368-2090
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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