CHICAGO--(BUSINESS WIRE)--Western Gas Partners, LP's (WES) plan to acquire Nuevo Midstream, LLC for $1.5 billion is credit-neutral in the near term while providing geographic diversification and organic growth opportunities in the longer term, according to Fitch Ratings.
Nuevo is a leading Delaware Basin gas gatherer and processor with approximately 70% fee-based gross margin. The acquisition continues WES' strategy of pursuing fee-based opportunities for growth. Management expects that post-transaction over 95% of consolidated gross margin will be fee-based or covered under fixed price arrangements with Anadarko Petroleum Corp. (APC).
The Nuevo asset footprint complements existing APC acreage in the Delaware basin and provides a clear path for both parties to continue resource development. WES' relationship with APC provides for a clearer line-of-sight on production growth around the Nuevo systems, leading to less volumetric uncertainty for WES.
Proposed funding contains a significant equity component. WES will issue $750 million of new class C units to APC. The class C units will receive distributions in the form of additional class C units until such time that they are converted to common units. WES retains an option to convert sooner, while APC retains an option to delay conversion past the initial conversion date of Dec. 31, 2017. Fitch does not anticipate any problems with WES maintaining its near term distribution coverage targets as a result of the transaction, as the class C units will not pay cash distributions until conversion. Distribution coverage was 1.2x as of Sept. 30, 2014.
APC has a joint venture arrangement with a third-party which gives the third party the right to acquire a 50% interest in Nuevo. The third-party will have 30 days to respond to the offer. As of September 30, WES had $1 billion available under its revolving credit facility and is prepared to purchase 100% of Nuevo if the third party does not participate.
Fitch anticipates that the transaction will not have a detrimental impact on leverage and credit quality for WES, even in the event of long-term debt funding for the remaining 50% of the purchase price. The Rating Outlook for WES remains Positive.
Additional information is available at 'www.fitchratings.com'.
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