Fitch: MPLX LP/Markwest Energy Partners Merger a Positive; No Ratings Impact on Marathon Petroleum

CHICAGO--(BUSINESS WIRE)--

Fitch Ratings views the proposed merger of MPLX LP MPLX and Markwest Energy Partners, LP MWE as a positive long-term strategic combination with no near-term ratings implications for MPLX's sponsor, Marathon Petroleum Corporation MPC.

The proposed merger contemplates a unit-for-unit exchange, with MPLX issuing new units to MWE unitholders at a fixed exchange ratio of 1.09x. MPC will contribute $675 million in cash to facilitate the transaction, which will provide consideration of $3.37/unit to existing MWE unitholders, as well as contribute an additional $298 million to MPLX to maintain its 2% GP interest. MPC had approximately $2 billion in cash as of March 31, 2015. MPLX expects to assume approximately $4.2 billion in outstanding MWE debt, with no incremental debt issued by MPLX or MPC to fund the transaction. Leverage metrics at MPC will likely increase modestly due to the accounting consolidation of MPLX/MWE and MWE's leverage profile. However, stand-alone credit fundamentals at MPC will be largely unaffected by the deal, and the outlook for near-term cash flow generation from MPC's refining operations remains strong.

In addition, MPC maintains an inventory of qualified assets representing approximately $1.6 billion in annual EBITDA that remain eligible for dropdown to MPLX. Given the significant project backlog at MWE from the development of Marcellus/Utica infrastructure, the transaction should help to increase MPC's flexibility with regards to the timing of dropdowns and the funding of organic growth projects. MPC's free cash flow profile has been strong over the last several years, in part due to a favorable refining fundamentals and an accommodating crack spread environment. Fitch maintains a favorable near term view on the refining sector, which should lessen MPC's need for near term dropdown proceeds, and provides the combined entity an opportunity to pursue significant growth through organic midstream projects while maintaining a solid investment grade credit profile. MPC's strong balance sheet also provides the option to fund additional midstream development projects (i.e. those with longer lead times and/or larger up-front capital costs) at the parent company, increasing MPC's inventory for future dropdowns to MPLX as the build out in Marcellus/Utica infrastructure eventually slows.

Additional information is available at 'www.fitchratings.com'.

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