NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded Enable Midstream Partners, LP's (Enable) Long-term Issuer Default Rating (IDR), senior unsecured debt and revolving credit facility to 'BBB-' from 'BBB'. The Short-term IDR and commercial paper (CP) rating have been affirmed at 'F3'.
Fitch has also downgraded Enable Oklahoma Intrastate Transmission, LLC's (Enable Oklahoma, formerly known as Enogex LLC) Long-term IDR and senior unsecured rating to 'BBB-' from 'BBB'. Debt outstanding at Enable Oklahoma is guaranteed by Enable.
The Rating Outlook for both entities is Stable. Today's rating actions affects $3.2 billion of debt outstanding.
KEY RATING DRIVERS
The downgrade reflects Fitch's concerns about Enable's leverage, which has been increasing above previously expected targets. Other concerns include Enable's exposure within commodity price sensitive gathering and processing operations, which accounted for 62% of gross margins in the third quarter of 2015. This segment has been negatively affected by low natural gas and natural gas liquids prices. Enable has also been impacted by the low natural gas price differentials for the transportation and storage segment. Additional concerns include a lack of geographic diversification and Enable's large dependence on gathering and processing in the Anadarko Basin.
In addition, the downgrade reflects the challenging capital market environment and the partnership's plan for significant spending in 2016. In late 2015, the MLP forecasted growth capex of $600 to $800 million for 2016. There are no debt maturities until $363 million of notes are due in 2017. Like other master limited partnership (MLPs), Enable's access to the capital markets is more restricted than in the recent past when commodity prices were stronger. With Enable's high cost of equity, Fitch does not anticipate that it will access the equity markets until there is significant improvement in. However, liquidity should be sufficient for the near term with cash and availability on Enable's revolver of approximately $1.3 billion as of Sept. 30, 2015.
The 'BBB-' rating and Stable Outlook are supported by Enable's strategy to generate significant earnings from fee-based assets which Fitch expects to provide relatively stable earnings and cash flows. The rating is also supported by the partnership's size, diversity of assets and customers. Enable is an entity with assets in both dry gas and liquids rich basins. Furthermore, Enable is an MLP with two investment grade utility sponsors.
Should Enable's liquidity and capital market access further deteriorate, Enable would need to take steps to maintain adequate liquidity and reasonable leverage metrics at or near current levels, through decreased capital spending, distribution cuts, or increased sponsor support to maintain the rating and Stable Outlook. Failure to do so would likely result in Fitch taking a negative rating action.
Leverage: Enable's leverage has been increasing during the more challenging commodity environment. For the LTM ending on September 30, 2015, adjusted leverage (defined as debt to adjusted EBITDA) was 3.87x which is up significantly from the end of 2014 when it was 2.95x. The higher leverage is attributed to both lower EBITDA and higher debt. Adjusted EBITDA for the LTM was $820 million, down from $862 million in 2014 primarily driven by lower earnings in Enable's G&P segment. Over the same time frame, debt rose $625 million to $3.2 billion as Enable continued to pursue growth spending opportunities. Fitch forecasts leverage to rise in 2016 given ongoing weakness in gas prices and a moderate reduction in growth spending. Fitch expects yearend adjusted leverage to be in the range of 4.25-4.75x for 2016 and remaining in that range over the next few years.
Spending: Even in today's challenging environment, Fitch expects Enable to continue spending to grow distributable cash flows and to support distributions increases. During the latest-12-months (LTM) ending Sept. 30, 2015, Enable spent $905 million of total capex. As of November 2015, Enable forecasted 2016 contracted growth capex to be in the range of $600 million to $800 million. Another $300 million to $500 million may be spent on other growth opportunities. Fitch believes these spending levels may be reduced given the challenging environment and reduced production from upstream producers, yet remain fairly robust. The projects being pursued are generally supportive of Enable's credit profile with a focus on projects supported by contracted cash flows with investment grade counterparties. Significant projects include processing plants in Oklahoma.
Contract Mix: In 2016, Enable projects approximately 90% of gross margins will come from fee-based or hedged arrangements. Commodity based gross margins are primarily from the partnership's gathering and processing segment. On average, Fitch expects this segment to account for approximately 60% of gross margins. Roll-over risk remains a concern, particularly, as commodity prices remain lower for longer and hedges roll-off.
PARTNERSHIP DETAILS
On May 1, 2013, Enable was formed as a midstream joint venture between CenterPoint Energy Inc. (CenterPoint, IDR 'BBB'/Stable Outlook) and OGE Energy Corp. (OGE, IDR 'A-'/Stable Outlook). Enable is a MLP owned 55.4% by CenterPoint, 26.3% by OGE and 18.3% by the public. CenterPoint and OGE each have a 50% management interest in the general partner. Incentive distribution rights are split 40% to CenterPoint and 60% to OGE.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Enable include:
--Despite significant capex spending in 2015, EBITDA in 2016 is likely to approximate levels seen in 2015 due to the challenging commodity price environment;
--Debt increases in 2016 given unattractive equity markets which restrict the issuance of common equity;
--Capex is reduced from spending seen in 2015 given market conditions;
--No assumptions are made for acquisitions.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Positive rating is not expected but could occur if adjusted leverage were expected to be below 4.0x on a sustained basis.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--Material changes in Enable's strategy and/or inability to maintain low leverage while funding significant capex;
--Adjusted leverage in excess of 5.0x on a sustained basis;
--Significant increases in commodity-based gathering and processing contracts which would increase the volatility of cash flows;
--Reduced liquidity or lack of access to capital markets may also result in negative rating action.
LIQUIDITY
As of Sept. 30, 2015, Enable had $1.3 billion of liquidity. It had $5 million of cash on the balance sheet. In addition, it had $1.3 billion of availability on its $1.75 billion revolving credit facility which extends through 2020. The revolver had no borrowings and $2 million of letters of credit outstanding. Commercial paper borrowings of $432 million reduced revolver availability. Enable may issue up to $1.4 billion of commercial paper which is backed back the revolving credit facility. There are no near term debt maturities until $363 million of notes payable to an affiliate, CenterPoint Energy Resources Corp. (CERC; IDR BBB/Stable Outlook), become due in 2017.
The bank agreement includes a financial covenant which restricts debt-to-EBITDA ratio from exceeding of 5.0x (bank agreement defined EBITDA), expanding temporarily to 5.5x in the event of acquisitions. Fitch believes that Enable will have adequate cushion for its leverage covenant.
FULL LIST OF RATINGS
Fitch Ratings has taken the following rating actions for Enable Midstream Partners, LP (Enable):
--Long-term IDR downgraded to 'BBB-' from 'BBB';
--Senior unsecured debt and revolver downgraded to 'BBB-' from 'BBB';
--Short-term IDR and commercial paper (CP) rating affirmed at 'F3'.
Fitch also downgraded the rating of Enable Oklahoma Intrastate Transmission, LLC (formerly known as Enogex LLC) as follows:
--Long-term IDR downgraded to 'BBB-' from 'BBB';
--Senior unsecured debt downgraded to 'BBB-' from 'BBB'.
The Rating Outlook for both entities is Stable.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Short-Term Ratings Criteria for Non-Financial Corporates (pub. 13 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869259
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=998264
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=998264
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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.