S&P Raises Access Midstream Partners (ACMP) to 'BB+'; Improved Counterparty Risk to Chesapeake (CHK)

Standard & Poor's Ratings Services raised its corporate credit rating on Access Midstream Partners L.P. (Nasdaq: ACMP) to 'BB+' from 'BB'. At the same time, we raised our issue-level rating on Access' senior unsecured debt to 'BB+' from 'BB-'. The '4' recovery rating is unchanged. The outlook is stable.

"The ratings action reflects our view of Access Midstream Partners L.P.'s improved counterparty risk related to Chesapeake Energy Corp. (NYSE: CHK) following our recent upgrade on CHK to 'BB+' from 'BB-'," said Standard & Poor's credit analyst Nora Pickens.

Access' counterparty exposure to CHK, which we estimate will account for about 75% of 2014 cash flow, caps the ratings at this time. Furthermore, we estimate that 40% of the firm's 2014 EBITDA will come from above-market gathering contracts related to the "dry" gas (gas lacking liquids such as ethane or butane) in the Barnett and Haynesville regions, which we believe provides customers (i.e., CHK and Total S.A.) more incentive to renegotiate rates in a distressed scenario. In a more extreme case, a CHK bankruptcy could make Access' business substantially more uncertain. Any potential buyers would need to use the Access assets to bring the hydrocarbons to market, but could seek to renegotiate fees. Because Access generally earns a mid-teens rate of return on its investments, we believe that contracts related to "wet" gas basins (those rich in natural gas liquids) would likely be considered reasonable. However, rates on gathering lines are highly site-specific and they are
difficult to forecast.

We consider Access' business risk profile as "satisfactory", as defined by our criteria.

We consider Access' financial risk profile as "significant." Liquidity is "adequate" under our criteria, with sources exceeding uses by about 1.25x for the next 12 months.

The outlook on the rating is stable. Access' significant customer concentration with CHK caps the ratings at this time. However, we could elevate our ratings on Access higher than our ratings on CHK if it achieves greater customer diversity and maintains debt to EBITDA below 4x. Independent of any potential ratings actions on CHK, we could lower our ratings on Access if the partnership materially increases leverage such that pro forma debt to EBITDA exceeds 4.5x on a sustained basis or if it begins to assume more significant commodity price risk.

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