Fitch Affirms MLPX at 'BBB-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'BBB-' long-term Issuer Default Rating (IDR) and senior unsecured debt rating for MPLX LP (MPLX). The Rating Outlook is Stable.

KEY RATING DRIVERS

Factors that support the rating include MPLX's strategy to continue to operate with low leverage for a 'BBB-' rating. The partnership benefits from increased size and scale as well as greater diversity of assets following the acquisition of MarkWest Energy LP (MarkWest) in December 2015. MPLX's logistics and storage assets include crude oil and refined product pipelines as well as storage assets in the Midwest and Gulf Coast. MarkWest is a large gatherer and processor with a significant presence in the Marcellus and Utica. It is the second largest gas processor in the U.S. and it processes approximately 75% of the rich gas produced in the Marcellus and Utica.

MPLX's rating is also supported by its strong sponsor, Marathon Petroleum Corporation (MPC; IDR 'BBB'/Outlook Stable) which owned an 18% limited partnership interest and the 2% general interest as of Dec. 31, 2015. Long term fee-based contracts with MPC provide MPLX with stable cash flows. Assets from MarkWest generate cash flows which are primarily from fee-based agreements and most of MarkWest's minimum volume commitments are in growing production regions, including the Marcellus and Utica Shales.

The partnership plans to continue to operate with strong distribution coverage which was just below 1.3x on a pro forma basis at the end of 2015 and is targeted at 1.1x for the long term. Furthermore, MPLX's assets (excluding MarkWest assets) are integral for MPC and in 2015, MPC accounted for 92% of MPLX's logistics and storage revenues. Historically, MPC has accounted for over 85% of pipeline volumes. Future growth for the logistics and storage segment is to come from continued dropdown of midstream assets from MPC which has a significant inventory of assets while also developing new ones. Following the dropdown of the marine assets which are expected to generate annualized EBITDA of $120 million, MPC estimates it has midstream assets that generate approximately $1.5 billion of EBITDA available for future dropdowns. EBITDA growth from the MarkWest assets is expected to come from its significant organic growth projects. Its spending for these growth projects are expected to total $7.5 billion between 2016 and 2020.

Concerns include MPLX's plans to grow at a fast pace, although the partnership does have the ability to reduce future growth should market conditions warrant a slower trajectory. The partnership has greatly pulled back spending plans for 2016 in light of the prolonged weakness in commodity prices.

While the MarkWest acquisition brings greater diversity to MPLX, it also brings volatile cash flows from gathering and processing assets which is another concern. The majority of assets are supported by minimum volume commitments, but not all. Fitch is also concerned that upstream producers are likely to pressure gatherers and processors for more favorable pricing even for existing long term contracts. However, Fitch notes that MPLX's gathering and processing assets are located in basins with favorable economics and strong production.

Previously, MPLX's rating was restricted by its dependence on MPC. In 2015, 72% of MPLX's revenues came from MPC. Given the MarkWest acquisition, the dependence is significantly reduced yet remains an important factor given MPLX's reliance on sponsor support for dropdowns and financing.

Leverage: As of year-end 2015, MPLX's adjusted pro forma leverage was 4.8x, up from 3.9x at the end of 2014. 2015's pro forma adjusted EBITDA includes EBITDA from MarkWest as if the acquisition occurred on Jan. 1, 2015. Fitch expects to see adjusted leverage decrease in 2016 and fall in the range of 4.4x-4.7x.

Strong Support from MPC: MPC provides support to MPLX in the form of long term volume commitments on its logistics and storage midstream assets which are critical to MPC's operations. Future dropdowns from MPC will provide MPLX with opportunities to increase in size and scale. MPC has also provided MPLX with financial support for dropdowns, acquisitions and liquidity. It provided $1.28 billion of cash for the MarkWest acquisition. For the most recent dropdown of marine assets, MPC took $600 million of MPLX common units. MPC also has a $500 million credit facility extended to MPLX through 2020.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for MPLX include:

--Adjusted EBITDA for 2016 falls within management's guidance of $1.25 billion to $1.4 billion;

--Growth capex is in the range of $800 million to $1.2 billion in 2016 (also in line with MPLX guidance);

--Distribution growth of 12% to 15% in 2016 followed by low double digit growth in the following two years;

--Funding for growth and dropdowns in the forecast years is executed in a manner that leaves adjusted leverage (as defined by Fitch) in a range of 4.2x to 4.7x.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Reduced leveraged (as defined by Fitch) below 4.0x over a sustained period of time;

--Favorable rating action at MPC.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Significantly reduced volume commitments from MPC which could occur as contracts come up for renewal;

--Reduction in fee-based gathering and processing agreements since it would increase cash flow volatility;

--Significant EBITDA contraction from renegotiated gathering and processing contracts or contracts renewed at much lower rates;

--Increases in capital spending or dropdowns beyond Fitch's expectations that have negative consequences for the credit profile (e.g., if not funded with a balance of debt and equity);

--Increased adjusted leverage (as defined by Fitch) beyond 5.0x for a sustained period of time (although allowing for temporary increases as a result of acquisitions);

--Negative rating action at MPC.

LIQUIDITY

As of year-end 2015, MPLX had over $1.6 billion of liquidity. It has a $2 billion senior unsecured revolver which extends through 2020. As of Dec. 31, 2015, borrowings on the revolver were $877 million and letters of credit outstanding were $8 million. In addition, MPLX has a $500 million revolving loan agreement with MPC which also extends until 2020. As of year-end 2015, borrowings were $8 million on the MPC facility. Cash on the balance sheet was $43 million.

Leverage (as defined by the bank agreement) cannot exceed 5.0x at the end of any quarter. Following an acquisition period (whereby MPLX has acquired $50 million or more of assets within the last 12 months), leverage cannot exceed 5.5x for two consecutive quarters. As of year-end 2015, the bank definition of leverage was 4.6x. Fitch expects MPLX to maintain adequate headroom on its covenants.

Fitch has affirmed the following ratings:

MPLX LP

--Long-term IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

The Rating Outlook is Stable.

Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below:

--Adjusted leverage (defined by Fitch as debt to adjusted EBITDA (EBITDA less equity income plus distributions from affiliates) for 2015 is pro forma for the MarkWest acquisition as if the transaction closed on Jan. 1, 2015 (versus the actual closing date of Dec. 4, 2015).

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

Additional Disclosures

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002660

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Contacts

Fitch Ratings
Primary Analyst
Kathleen Connelly
Director
+1-212-908-0290
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brad Bell
Associate Director
+1-312-368-3149
or
Committee Chairperson
Steve Brown
Senior Director
+1-312-368-3139
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Kathleen Connelly
Director
+1-212-908-0290
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brad Bell
Associate Director
+1-312-368-3149
or
Committee Chairperson
Steve Brown
Senior Director
+1-312-368-3139
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com