Fitch Rates El Paso Pipeline Partners Operating Co., L.L.C.'s $475MM Offering 'BBB-'; Outlook Stable
Fitch Ratings has assigned a 'BBB-' rating to El Paso Pipeline Partners Operating Company LLC (EPBO) proposed offering of $475 million in senior notes due 2042. The Rating Outlook is Stable. The notes will rank pari passu with all of EPBO's existing and future unsecured senior indebtedness and will be fully and unconditionally guaranteed on a senior unsecured basis by El Paso Pipeline Partners, L.P. (NYSE: EPB). Proceeds from the notes will go repay borrowings under its revolving credit facility and general partnership purposes.
EPBO is a wholly owned subsidiary of EPB, a Delaware master limited partnership formed in 2007 by El Paso Corp. (EP; Fitch IDR 'BB+', Stable Outlook) to own and operate interstate natural gas transportation, storage and terminaling facilities. EPBO owns and operates various natural gas pipeline systems and terminaling facilities, including Wyoming Interstate Company, L.L.C. (WIC), Colorado Interstate Gas Company, L.L.C.(CIG; IDR 'BBB', Stable Outlook), Southern Natural Gas Company, L.L.C. (SNG; IDR 'BBB', Stable Outlook), Elba Express Company L.L.C. (Elba Express), Southern LNG Company, L.L.C. (SLNG) and Cheyenne Plains Gas Pipeline Company, L.L.C. (Cheyenne).
The ratings recognize the expected stability of EPBO's earnings and cash flows which are supported by its lower business risk asset base consistent with predominantly FERC regulated pipeline assets. EPBO's subsidiaries exhibit consistent cash flow, low business risk and strong credit profiles. EPBO's assets all have favorable market positions and connectivity in key supply/demand areas. Approximately 93% of EPBO's 2011 revenues were collected in the form of demand or reservation charges. The weighted average remaining contract term for EPB's active contracts was approximately eight years as of Dec. 31, 2011.
EPBO reported debt/EBITDA for the LTM ended Sept. 30, 2012 of 4.2x, Fitch expects debt/EBITDA to remain between 4.0x to 4.25x for the balance of 2012 and between 3.8x and 4.3x for 2013. EPBO's liquidity is adequate with availability under its $1.0B revolver of $522 million as of Sept. 30, 2012. Proceeds from this issuance are expected to be used to pay down outstanding revolver borrowings. Maturities are manageable with $88 million in expected maturities at EPBO in 2013.
Key Credit Considerations
Scale and Diversity of Assets: Taken as a whole, the scale and regional diversity the EPBO's pipeline systems and operating assets which have access to the principal U.S. supply basins and deliver into major consumer markets limits EPBO's exposure to shifting natural gas supply/demand dynamics. Additional delivery flexibility is provided from interconnected storage capacity and access to the Elba Island, Georgia LNG receiving terminal. Each of the pipelines and storage facilities operates under FERC regulation, which historically has been light-handed though does not provide meaningful credit 'ring-fencing' to protect the pipelines from affiliated company risk.
Stable Consistent Earnings and Cash Flow: Over 90% of EPBO consolidated revenues are generated through non-volume sensitive capacity reservation charges under long term contracts, limiting earnings and cash flow volatility.
Structural Subordination: Debt at EPBO is structurally subordinate to debt at its operating subsidiaries.
Parent Company Affiliation: EPBO's ratings have historically been constrained to a one notch separation from its ultimate parent company EP. This was due to the legal, financial and operating ties that EPBO and EPB had with EP, its general partner. As GP EP had significant control over EPB's operations and finances. With the acquisition of EP by Kinder Morgan Inc. (KMI; 'BB+', Stable Outlook), EPB and EPBO is now be ultimately controlled by KMI Fitch continues to believe that the one notch separation is appropriate.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--A change in rating or outlook at EP and or KMI.
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--An acquisition or transaction that significantly increases leverage or operating risk;
--A significant increase in partnership distributions that results in a deterioration in distribution coverage, which Fitch expects to be over 1.0x or;
--A change in rating or outlook at EP/KMI.
Fitch rates EPBO as follows:
--IDR at 'BBB-';
--Senior unsecured debt at 'BBB-'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' Aug. 8, 2012;
--'Parent and Subsidiary Rating Linkage' Aug. 8, 2012;
--'Marcellus Shale Report: Midstream and Pipeline Sector Challenges and Opportunities' June 10, 2012;
--'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors' May 1, 2012;
--'Master Limited Partnerships 101' Nov. 1, 2011;
--'Natural Gas Pipelines: Hot Topics' Oct. 13, 2011.
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Marcellus Shale Report: Midstream and Pipeline Sector -- Challenges/Opportunities
Top Ten Questions Asked by Pipeline, Midstream and MLP Investors
Master Limited Partnerships 101
Natural Gas Pipelines: Hot Topics -- Long-Term Trends Affecting Pipeline Risk
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