Fitch: US Midstream M&A Poised to Continue

NEW YORK--()--The pace of US midstream merger and acquisition (M&A) activity shows little sign of letting up to close out 2016, according to Fitch Ratings. Modest-sized acquisitions are poised to continue as midstream companies look to grow robustly in a time of slimmed-down capital expenditure budgets.

Should M&A continue, we expect the impact on the sector will likely be neutral, provided issuers continue to lean on equity investors in order to keep a lid on leverage.

Several acquisition announcements that strategically round out the activities of the acquiring parties, as well as mergers of smaller master limited partnerships (MLPs) looking to increase size and scale, have recently been announced. These include three modest-sized acquisitions by Sunoco Logistics Partners (SXL), Buckeye Partners (BPL) and Energy Transfer Partners (ETP). In aggregate, the assets acquired span most of the activities in the midstream sector, and Fitch viewed each as neutral to their credit profiles. We expect continued M&A activity in the near to intermediate term that focuses on similar opportunistic asset acquisition by larger midstream and MLP issuers and smaller issuers scaling up, particularly as large historical organic growth opportunities moderate.

In late September, SXL announced it would buy an integrated crude oil network in the Permian basin from Vitol for $760 million, which will provide a strong platform for SXL within the Permian basin. ETP announced this week it will pay $640 million for a stake in PennTex Midstream Partners, bolstering ETP's position in northern Louisiana. BPL will purchase a stake in international liquids terminals from Vitol for $1.15 billion, further expanding its significant terminals operations internationally.

All three of the acquiring companies have ample operational know-how with respect to the purchased assets. BPL has a significant terminals division, which, at year-end 2015, was measured at 118 million barrels of liquid petroleum product storage capacity. Ratable for its ownership percentage stake, the acquisition will bring the partnership another 22 million barrels of capacity (by ownership stake). SXL will acquire a system that begins at crude oil gathering pipelines and ends at a long-haul takeaway pipeline. This type of system is a foundational asset network for this MLP. The ETP purchase is a natural gas midstream network, which includes two processing plants. The midstream segment is ETP's largest.

All three of the above-mentioned acquisitions demonstrate the continuing resiliency of the equity capital markets amid low commodity prices. SXL's equity issuance raised gross proceeds of $567 million, before underwriter option, while Buckeye Partners raised $512 million. ETP stated that a portion of its cash payment portion will be funded with cash recently raised by its At-The-Market (ATM) program. In the second quarter, the ATM program and the Distribution Reinvestment program combined to raise $363 million.

The acquirers are also all members of the Alerian MLP index. There is activity among smaller companies as well. American Midstream Partners announced an agreement to acquire JP Energy Partners. The companies share ArcLight Capital Partners in their ownership structures. This announcement indicates that smaller companies may use the current relatively stable investment climate as a time to significantly grow in size.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Contacts

Fitch Ratings
Tom Brownsword, +1-646-582-4881
Senior Director
Corporate Finance
Fitch Ratings
33 Whitehall Street
New York, NY
or
Peter Molica, +1-212-908-0288
Senior Director
Corporate Finance
or
Kellie Geressy-Nilsen, +1-212-908-9123
Fitch Wire
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Tom Brownsword, +1-646-582-4881
Senior Director
Corporate Finance
Fitch Ratings
33 Whitehall Street
New York, NY
or
Peter Molica, +1-212-908-0288
Senior Director
Corporate Finance
or
Kellie Geressy-Nilsen, +1-212-908-9123
Fitch Wire
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com