TEXT-S&P rates Brookfield Infrastructure Partners LP

Fri May 4, 2012 3:26pm EDT

Overview	
     -- We are assigning our 'BBB+' long-term corporate credit rating to 	
Brookfield Infrastructure Partners L.P.	
     -- The rating reflects our view of the partnership's strong business risk 	
profile.	
     -- The stable outlook reflects our view that the portfolio of companies 	
provides a strong stream of cash flow to BIP.	
	
Rating Action	
On May 4, 2012, Standard & Poor's Ratings Services assigned its 'BBB+' 	
long-term corporate credit rating to Bermuda-based Brookfield Infrastructure 	
Partners L.P. (BIP). The outlook is stable. 	
	
Rationale	
The rating on BIP reflects Standard & Poor's view of the partnership's strong 	
business risk profile. BIP's portfolio consists of a diverse group of 	
businesses with very stable cash flows. The companies' diversity is manifest 	
on several levels. The first is geographic, with companies in North and South 	
America, Australia, and Europe. Moreover, these cash flows are subject to a 	
variety of revenue frameworks with a majority of the cash flow supported by 	
regulations or a strong contractual framework that provide monopolistic or 	
near-monopolistic competitive positions. Secondly, the counterparties with 	
respect to many of these contracts are companies or governments that we 	
consider investment-grade. Finally, the services from companies that make up a 	
large percentage of EBITDA enjoy high barriers to entry, either as a result of 	
a regulatory or contractual framework or because of economies of scale. 	
Moreover, a significant portion of EBITDA represents an essential service for 	
the operating company's customers, but do not constitute a significant 	
expense, further strengthening the stability of cash flow. Two examples of 	
this are the Dalrymple Bay Coal Terminal and Brookfield Rail.	
	
We also base the rating on what we view as BIP's significant financial risk 	
profile. Although we believe financial measures at the consolidated level are 	
weak, the significant asset level cash flow provides strong financial 	
flexibility. This is particularly true in light of the limited amount of debt 	
at the BIP level, which management estimates will remain at 5%-10% of the 	
partnership's proportionate share of consolidated debt. The financial measures 	
reflect BIP's practice of using nonrecourse debt in its operating companies. 	
Although this debt is nonrecourse to the partnership, it increases the 	
variability of cash flow distributable to BIP because this cash flow is only 	
available after the operating needs and debt servicing requirements at the 	
operating company level are satisfied. Moreover, most of the BIP-level debt is 	
subject to covenants, which prevent the distribution of cash if certain 	
thresholds are breached. Although there is sufficient cushion between the 	
current covenant level and the threshold level, deterioration in economic 	
conditions in one of the partnership's key markets could lead to a covenant 	
breach, which in turn would reduce the cash flow available to BIP. An example 	
of this is a slowdown in the global steel market particularly in Asia. This 	
would affect the partnership directly in that Dalrymple Bay Coal Terminal is 	
responsible for processing 22% of world metallurgical seaborne coal annually. 	
Furthermore, the majority of the expected growth at Brookfield Rail will be 	
from iron ore shipments bound for Chinese steel mills. The presence of 	
cash-flow lock-up covenants and the potential volatility in cash flow is a 	
risk that constrains the rating.  In addition, most of the company-level debt 	
is subject to bullet maturities, which increase the potential volatility of 	
remittable cash flow to BIP.  Should a portfolio company be unable to 	
refinance a maturity, creditors would likely exercise their security, which 	
would likely lead to a suspension in cash flow distribution to BIP.  	
	
BIP is a Bermuda-based partnership focusing on infrastructure assets. 	
Brookfield Asset Management Inc. (A-/Negative/A-2) owns approximately 30% of 	
the partnership's units, with the remainder held by the public. The businesses 	
that underlie BIP can be grouped into three broad operating platforms: 	
utilities, transport and energy, and timber. 	
	
The partnership's operating strategy is to own and operate a globally 	
diversified portfolio of infrastructure assets with revenues that are 	
primarily regulated or contracted on a long-term basis and benefit from GDP 	
growth or inflation. BIP is committed to actively managing the assets to 	
increase efficiency and optimize profitability. In that regard, while the 	
partnership does not own 100% of all of the assets, it does control the 	
majority of them, which is a key consideration in its strategy.	
	
The utilities platform represents approximately 52% of EBITDA, while the 	
transport and energy platform represents about 40%. We expect that by 2014 	
these figures will reverse, with the utilities platform representing 	
approximately 42% and the transport and energy platform representing 	
approximately 50%. The shift is largely due to a significant expansion at 	
Brookfield Rail. The company is pursuing a number of customer-driven 	
initiatives to upgrade the rail system to service iron ore mining companies in 	
southwest Australia. Supporting this expansion are take-or-pay contracts with 	
investment grade quality counterparties or that have other credit enhancements.	
	
On a partially deconsolidated basis, we expect the base case level of 	
remittable cash to be approximately US$350 million in 2012, increasing to 	
approximately US$500 million in 2014. Under a stressed scenario, for example a 	
weaker than expected Australian dollar or delays in cash flow generation at 	
Brookfield Rail, we expect the level of remittable cash could fall to US$350 	
million-US$375 million in 2014.	
	
An important aspect of our analysis is the level of remittable cash flow 	
available to BIP to service its corporate-level obligations. Notwithstanding 	
the forecast amount of cash available to the partnership, and the relatively 	
small amount of debt forecast at the BIP level, we recognize the potential 	
volatility of this cash flow because of the lock-up covenants that exist at 	
the asset level. Should a stressed economic condition consistent with a 'BBB' 	
category manifest itself, the asset companies' ability to remit cash could be 	
curtailed, reducing the partnership's ability to service its obligations. This 	
exposure to cash-flow lock-up covenants and the potential volatility in cash 	
flow to BIP that they create is and will continue to be a rating constraint.	
	
Management has indicated that it has a strong commitment to keeping financing 	
a significant portion of growth through equity issuance and asset level 	
financing. In that regard, management has indicated that it is committed to 	
maintaining the amount of debt at BIP to 5% of its proportionate share of 	
consolidated debt. Moreover, a movement toward 10% would be in the context of 	
further growth while maintaining a similar business risk profile, including 	
cash flow and equity issuance.	
	
Liquidity	
We expect that in the next 12 months, projected sources of liquidity, 	
including a US$700 million availability under its committed revolving credit 	
facilities (maturing September 2013), and its annual cash flow generation that 	
we project to be about US$450 million will cover projected uses of 	
approximately US$300 million more than 3x. BIP does not have any debt maturing 	
in 2012 .This does not include the proportionate availability under subsidiary 	
credit facilities of approximately US$640 million.	
	
Notwithstanding the more than adequate liquidity outlined above, our belief 	
that BIP has a high standing in the capital markets and that it demonstrates 	
generally very prudent financial risk management, we consider the partnership 	
to have adequate liquidity as per our criteria. BIP might use the committed 	
revolving facility at least temporarily for things such as bridge financing 	
for acquisitions or refinancing. Given that the maturities at the asset 	
company level are predominately bullet, the partnership could draw on its 	
facilities to avoid potential temporary disruptions in the markets or a 	
default should the asset company not be able to refinance maturing debt. 	
Moreover, given the committed revolver's September 2013 maturity and the 	
12-month window in our liquidity criteria for us to consider these facilities 	
a source of liquidity, such facility will not be considered a source after 	
Sept. 30, 2012, unless it is renegotiated before then.	
	
Outlook	
The stable outlook reflects our view that the portfolio of companies provides 	
a strong stream of cash flow to BIP based on geographic diversity, revenue 	
framework diversity and competitive position. We base this view on the 	
partnership's continued ability to attract external capital and adherence to 	
its policy of using mainly nonrecourse company-level debt. However, the 	
presence of lock-up covenants and a high level of leverage at the asset level 	
introduce potential volatility to the remittable cash flow. Because of this, 	
an upgrade is unlikely during our two-year outlook horizon. Standard & Poor's 	
could consider lowering the rating if the level of debt at the partnership 	
represents more than 10% of its proportionate share of consolidated debt. We 	
could also consider lowering the rating if remittable cash flow deteriorates 	
or the volatility of remittable cash flow to BIP from the asset level 	
companies increases on a sustained basis.	
	
Related Criteria And Research	
     -- Methodology And Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011	
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 	
May 27, 2009	
     -- Rating Methodology for Investment Holding and Operating Holding 	
Companies, Feb. 5, 2003	
	
Ratings List	
Rating Assigned	
	
Brookfield Infrastructure Partners L.P.	
 Corporate credit rating             BBB+/Stable/--
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