Fitch Affirms Enable Midstream's Ratings at 'BBB'; Expects to Rate S-T & CP Ratings at 'F3'
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings for Enable Midstream Partners LP (Enable) as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured debt at 'BBB';
--Term loan and revolver at 'BBB'
In addition, Fitch has assigned the following ratings:
--Short-term IDR and commercial paper (CP) 'F3'.
Fitch has also affirmed the ratings for Enable Oklahoma Intrastate Transmission LLC (Enable Oklahoma, formerly known as Enogex LLC) as follows:
--IDR at 'BBB';
--Senior unsecured debt at 'BBB';
--Term loan at 'BBB'.
Debt outstanding at Enable Transmission is guaranteed by Enable. The Rating Outlook for both entities is Stable.
KEY RATINGS DRIVERS
Enable's ratings are supported by its strategy to operate with low leverage and to generate significant earnings from fee-based assets which provide somewhat stable cash flows. The rating is also supported by its size, scope, and diversity of geography, assets and customers.
The midstream assets contributed to Enable from CenterPoint Energy Inc. (CenterPoint, IDR rated 'BBB' with a Stable Outlook by Fitch), OGE Energy Corp. (OGE, IDR rated 'A-'; Stable Outlook) and affiliates of ArcLight Capital Partners, LLC (ArcLight) are geographically complementary and create a good strategic fit, creating opportunities for growth and synergies which management estimates to be over $50 million.
Midstream assets from CenterPoint are located in Oklahoma and eight other states. Assets from OGE and ArcLight are primarily located in Oklahoma. Enable is an entity with assets in both dry gas and liquids rich basins.
Ratings Issues: Fitch's credit concerns include commodity and volume exposure, the potential for strategic spending or acquisition activity to accelerate in order to support increased growth for distributions, as well as execution and integration risk for the recently formed entity.
Liquidity: Enable has a $1.4 billion unsecured revolving credit facility due 2018. In addition, the partnership has approval to launch a $1.4 billion commercial paper program which is backed by the revolver. Fitch expects Enable to have adequate liquidity to meet its spending needs. Financial covenants in the bank agreement include maximum leverage to debt ratio of 5.0x (bank agreement defined EBITDA), expanding temporarily to 5.5x in the event of acquisitions exceeding $50 million.
Since Enable is a private limited partnership which CenterPoint and OGE plan to take public in the first half of 2014, the credit agreement contains language to address the planned initial public offering. An event of default is triggered by the change of control of the general partner.
Near-term debt maturities for Enable include $200 million of Enable Transmission notes maturing in 2014 and a $250 million Enable Transmission term loan due in 2015. Enable plans to refinance these two debt maturities along with the $1.05 billion Enable term loan due 2016 with a $1.5 billion senior unsecured note offering in the first half of 2014.
Leverage: Enable's leverage as of Sept. 30, 2013 was 2.9x which is low for an MLP with a 'BBB' rating. Fitch believes leverage may be in the range of 3.0x - 3.25x by the end of 2014 depending on how growth opportunities are funded.
Capital Expenditures: As a limited partnership, Fitch expects Enable to spend significantly to grow EBITDA to support distributions. The partnership forecasts 2014 growth capex of $488 million and maintenance capex of $199 million. Fitch believes growth capex may be above management's guidance since Enable may seek to pursue additional opportunities for growth.
Hedging and Contract Mix: Enable does not have any material hedges. To mitigate commodity exposure, the company has a significant amount of gross margins from fee-based contracts and arrangements. For the nine months ending Sept. 30, 2013 Enable estimates that approximately 75% of its gross margin was from fee-based contracts.
On May 1, 2013, Enable was formed as a midstream joint venture between CenterPoint and OGE. CenterPoint contributed its pipelines and field services businesses to CEFS and OGE contributed 100% of Enogex. Prior to the closing, Enogex was approximately 80% owned by OGE and 20% owned by ArcLight.
Enable is a private limited partnership formed to ultimately become a publicly traded master limited partnership (MLP). An IPO is expected to occur in the first half of 2014 subject to capital market conditions. CenterPoint and OGE each have a 50% management interest in the general partner. Incentive distribution rights are to be split 40% to CenterPoint and 60% to OGE. Limited partnership interests are owned 58.3% by CenterPoint, 28.5% by OGE and 13.2% by ArcLight.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Positive rating action is not expected but could occur if leverage dropped below 2.0x on a sustained basis.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--Material changes in management's strategy which creates a less favorable credit profile than Fitch's expectations;
--Leverage (defined as debt to adjusted EBITDA) in excess of 3.75x on a sustained basis;
--Significant increases in commodity-based gathering and processing contracts which would increase volatility of cash flows.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Pipelines, Midstream, and MLP Stats Quarterly - Third Quarter 2013' (Dec. 17, 2013);
--'2014 Outlook: Midstream Services' (Dec. 10, 2013);
--'Credit Considerations for the GP/LP Relationship' (Nov. 6, 2013);
--'Investor FAQs: Recent Questions on the Pipeline, Midstream, and MLP Sectors' (Aug. 5, 2013);
--'Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs' (April 18, 2013);
--'The Top Ten Differences Between MLP and Corporate Issuers' (Feb. 19, 2013);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).