Research: Rating Action: Moody’s Rates New EnLink Midstream, LLC Ba1 Ratings

New York, August 16, 2022 — Moody’s Investors Service (Moody’s) has assigned a Ba1 rating to EnLink Midstream, LLC’s (ENLC) proposed offering of senior unsecured notes. ENLC’s subsidiary is EnLink Midstream Partners, LP (ENLK, and collectively with ENLC, EnLink). ENLC’s and ENLK’s other ratings and stable rating outlook remain unchanged. The net proceeds of the offering are expected to be used to repay existing debt.

“The proposed note issuance opportunistically repays existing debt while enhancing financial flexibility,” commented Amol Joshi, vice president and chief credit officer of Moody’s.

Duties:

..Issuer: EnLink Midstream, LLC

….Gtd. Senior unsecured notes, assigned Ba1 (LGD4)

RATINGS RATIONALE

ENLC’s new senior debentures have been rated Ba1, similar to ENLC’s Ba1 family of companies (CFR) rating, and consistent with existing senior debenture ratings at ENLC and ENLK. ENLC has a $1.4 billion unsecured revolving credit facility (unrated) maturing June 2027, $500 million senior unsecured notes due 2028 and senior unsecured notes of $498.7 million due 2029. In addition, ENLK has over $3 billion of senior unsecured notes outstanding. An indirect subsidiary of ENLC also has an accounts receivable securitization facility of up to $500 million. The new notes are unsecured and are pari passu with ENLC’s existing unsecured debt.

The revolvers and unsecured tickets of ENLC benefit from an upstream guarantee from ENLK. However, ENLK’s unsecured notes do not benefit from any downstream guarantees from ENLC or any upstream guarantees from operating subsidiaries. EnLink has all of its assets at ENLK, and no assets are expected to be held at ENLC, allowing for a pari passu consideration of obligations at ENLC and ENLK. Further, the bonds of ENLK’s subsidiaries are not large in size relative to the unsecured notes to justify a notch below the CFR. The unsecured notes are therefore rated in accordance with Ba1 CFR. However, if the company holds significant assets in ENLC, the ENLC bonds will have a priority claim on those assets, which will put pressure on the ratings of ENLK’s unsecured notes.

ENLC’s Ba1 CFR reflects its high proportion of fee-based revenue with cash flow visibility, but subject to significant volume risk. Although ENLC has increased its equity distributions, these are still significantly below pre-pandemic levels, resulting in strong distribution coverage. Good payout coverage means that EnLink retains a higher proportion of cash flow, which alleviates the pressure of seeking third-party debt and dilutive equity to fund capital expenditures. EnLink also has a diversified gathering and processing (G&P) asset base, and the company self-finances its reduced levels of capital expenditure. The company is heavily exposed to STACK, where it faces volume risk but is mitigated by the gradual resumption of drilling activity. EnLink also has significant exposure to mature Barnett shales, where volume risk will likely decrease due to favorable natural gas prices. EnLink offsets this volume risk through capital-intensive growth in other regions such as the Permian, resulting in improved cash flow and credit metrics. The majority of EnLink’s capital spending in 2022 will be focused in the Permian Basin, followed by spending to improve its Louisiana and other assets. EnLink generates significant cash flows from Devon Energy Corporation (Devon, stable Baa3), and EnLink’s rating reflects this customer concentration risk.

The outlook for ENLC and ENLK is stable, reflecting good liquidity and distribution coverage.

FACTORS THAT MAY LEAD TO AN IMPROVEMENT OR DEGRADATION OF THE RATING

Although Moody’s does not expect ratings to improve in the near term, EnLink’s ratings could be upgraded if its earnings continue to grow, debt/EBITDA approaches 3.5x, consolidated leverage with its majority owners GIP III Stetson I, LP’s and GIP III Stetson II, LP’s (collectively GIP III Stetson) debt is approaching 4x, distribution coverage remains strong and its capital structure is further simplified. When calculating credit metrics for the purpose of assessing the potential for a ratings upgrade, a portion of EnLink’s preferred shares will be included in Moody’s Adjusted Debt.

EnLink’s rating could be downgraded if the company’s debt/EBITDA exceeds 4.5x, consolidated debt (including GIP III Stetson debt) exceeds 5x or distribution coverage deteriorates significantly. GIP III Stetson’s weak credit profile would also put pressure on EnLink’s rating.

The main methodology used in this rating is Midstream Energy published in February 2022 and available on https://ratings.moodys.com/api/rmc-documents/379531. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

EnLink Midstream, LLC is a publicly traded company that provides midstream energy services through its subsidiary EnLink Midstream Partners, LP, including the gathering, processing, fractionation, transportation and marketing of natural gas, natural gas and crude oil liquids in several regions of the United States, including the Woodford STACK, Cana and Arkoma shales, Barnett shales, Permian Basin and Louisiana.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the principal entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory information will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The rating has been communicated to the rated entity or its designated agent(s) and issued without modification as a result of such communication.

This rating is requested. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Amol Joshi, CFA
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Peter Speer
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Comments are closed.