TEXT-S&P rates Enterprise Products Operating 'A-2' short-term ratings

Thu Aug 9, 2012 3:48pm EDT

Aug 9 - Overview
     -- Enterprise Products Operating LLC (EPO) is establishing a $2 billion 
commercial paper program.
     -- EPO's parent company, U.S. midstream energy partnership Enterprise 
Products Partners L.P. (EPD; BBB/Positive/--), unconditionally guarantees the 
notes to be issued under the commercial paper program.
     -- We are assigning our 'A-2' short-term corporate credit rating to EPO 
and EPD and our 'A-2' short-term rating to the program.
     -- According to Standard & Poor's rating criteria, EPO and EPD's 
corporate credit rating of 'BBB' maps to a commercial paper rating of 'A-2'.
     -- The positive outlook on both entities reflects the possibility that we 
may raise ratings by one notch if the trajectory of credit trends continues.

Rating Action
On Aug. 9, 2012, Standard & Poor's Ratings Services assigned its 'A-2' 
short-term corporate credit rating to Enterprise Products Operating LLC (EPO) 
and Enterprise Products Partners L.P. (EPD). The long-term corporate credit 
rating on both entities is 'BBB' and the outlook is positive. We also assigned 
our 'A-2' short-term rating to the $2 billion commercial paper (CP) program.

Rationale
According to Standard & Poor's rating criteria, our 'BBB' corporate credit 
ratings on EPO and EPD maps to a CP rating of 'A-2'. The partnership will use 
the program for working capital requirements and other partnership purposes. 
EPO's $3.5 billion revolving credit facility that expires in September 2016 
will fully backstop the program. As of June 30, 2012, EPD's reported balance 
sheet debt totaled about $15 billion.

Standard & Poor's Ratings Services bases its ratings on Enterprise Products 
Partners L.P. (EPD) and its operating subsidiary Enterprise Products Operating 
LLC on the companies' "strong" business risk profiles and "significant" 
financial risk profiles under our criteria. Key credit strengths include EPD's 
operating scale, business-line diversity, and high proportion of fee-based 
revenues. Offsetting these strengths in part are EPD's aggressive growth 
strategy, commodity price exposure, significant financial leverage, and status 
as a master limited partnership (MLP). As an MLP, EPD distributes the majority 
of free cash flow (after maintenance capital spending) to unitholders each 
quarter and generally relies on the capital markets to fund growth capital 
spending.

EPD is one of the largest midstream energy partnerships in the U.S. Its 
integrated network of assets mainly includes:
     -- Natural gas liquids (NGL) fractionation, transportation, and natural 
gas processing (slightly more than 50% of its expected 2012 operating margin);
     -- Natural gas gathering, transportation, and storage (about 15%);
     -- Petrochemical services and refined products storage and transportation 
(nearly 20%);
     -- Offshore platform production services in the Gulf of Mexico (almost 
10%); and
     -- Onshore crude oil pipelines and services (slightly less than 5%).

Over the past several years, EPD has simplified what had been a complex 
organizational structure. EPD merged with Duncan Energy Partners L.P. in 
September 2011 and with Enterprise GP Holdings L.P. in November 2010, which 
served to reduce its capital costs due to the elimination of incentive 
distribution rights. We expect EPCO (renamed Enterprise Products Co.; the 
entity that owns the noneconomic general partnership in EPD and about 41% of 
its limited partnership units) to pay down its moderate level of debt during 
the next few years with excess cash flows.

Commodity price exposure remains the key business risk factor, most notably 
for NGL and crude oil marketing, petrochemical services, and keep-whole 
natural gas processing contracts. Although we believe that we have entered a 
period of relative strength of NGL prices vis-a-vis natural gas--which 
benefits Enterprise's cash flow--we recognize that prices are volatile, 
especially ethane and propane prices recently, and stress credit measures 
accordingly. Volume risk also exists, mainly for the natural gas gathering, 
refined products, offshore pipeline and production, and intrastate 
transportation businesses, but is not nearly as much of a driving force of 
cash flow volatility. Overall, cash flows are about 70% fee-based in nature, 
with hedges increasing near-term cash flow certainty to about 80%; we expect 
these ratios to be constant in 2012. EPD's new fee-based projects in the 
Haynesville and Eagle Ford gas basins are increasing the fee-based percentage 
of total cash flows to about 75%, which supports credit quality.

EPD continues to perform at or above our expectations, both operationally and 
financially, with the receipt of cash flows from recently completed projects 
and encouraging NGL market conditions driving solid underlying financial 
performance. EPD's capital spending program is also well managed and focused 
primarily on low- to moderate-risk projects that enhance its strong 
competitive position. Under our base-case forecast, we assume modest volume 
growth for NGL and natural gas processing and transportation and notable 
volume declines for offshore natural gas transportation and processing, with 
unhedged NGL volumes prices according to our price deck. For 2012, we expect 
the partnership to be able to maintain debt to EBITDA of about 4x. Debt 
leverage, however, still somewhat depends on the level of commodity prices, 
volumes, and incremental debt related to new capital spending projects. We 
expect EPD to issue sufficient equity to maintain its history of funding its 
projects in a balanced manner. For the 12 months ended March 31, 2012, EPD's 
adjusted financial measures improved, with debt to EBITDA about 3.5x, funds 
from operations (FFO) to total debt about 22%, and FFO interest coverage at 
4.7x. Distribution coverage was strong at 1.4x as of June 30, 2012. We also 
consider debt leverage on a consolidated basis, including debt at EPCO. We 
expect consolidated debt to EBITDA to be about 4.25x in 2012, although we 
expect EPCO to pay down its debt during the next few years.

Liquidity
We view EPD's liquidity as adequate. For the upcoming 12 months, we expect 
liquidity sources to exceed uses by about 1.2x. As of June 30, 2012, cash 
sources consisted of projected FFO of slightly more than $3 billion and 
revolver availability and cash of nearly $3.1 billion. EPD has a $3.5 billion 
revolving credit facility due in September 2016, which was undrawn as of March 
31, 2012. Expected cash uses over the next 12 months consist of capital 
spending (the vast majority relates to discretionary, growth-related projects) 
of about $2 billion, distributions of slightly more than $2 billion, and $1.2 
billion of debt maturities. The partnership remains in compliance with its 
financial covenants (debt to EBITDA was about 3.1x as of March 31, 2012, 
relative to the maximum allowed limit of 5x).

Cash sources could fall short of uses if EBITDA falls due to asset or 
commodity price underperformance, though a sizable percentage of fee-based and 
hedged cash flows limits this risk. If EBITDA were to fall, we would expect 
the company to curtail capital spending--especially as it gears its program 
toward discretionary growth-oriented projects--or use external financings, 
assuming the company does not reduce distributions. We estimate that the 
company will sustain capital spending at about $300 million. EPCO could also 
provide liquidity support by purchasing EPD equity, if necessary. Although 
EPD's liquidity and cash generation are adequate to fund its operations and 
maintenance capital spending, and to meet its debt service and distributions, 
continued access to the debt and equity markets is necessary for EPD to raise 
funds to support its growth-oriented capital spending. EPD has consistently 
demonstrated that it can access the capital markets amid challenging market 
conditions.

Outlook
The positive outlook reflects the possibility that we may raise ratings by one 
notch if the trajectory of credit trends continues. We could raise the ratings 
if the partnership continues to build scale, reduce its commodity price risk, 
and maintains a stronger financial profile with debt to EBITDA in the 3.5x-4x 
range depending on the level of commodity prices and volumes. We could revise 
the outlook to stable if debt to EBITDA were to increase to more than 4x on a 
sustained basis, which could occur if the company manages funding its growth 
projects and acquisitions with a higher degree of debt.

Related Criteria And Research
     -- Standard & Poor's Raises Its U. S. Natural Gas Price Assumptions; Oil 
Price Assumptions Are Unchanged, July 24, 2012
     -- Standard & Poor's Revises Its Natural Gas Liquids Price Assumptions 
For 2012, 2013, And 2014, June 11, 2012
     -- Key Credit Factors: Criteria For Rating The Global Midstream Energy 
Industry, April 18, 2012

Ratings List

Enterprise Products Operating LLC
Enterprise Products Partners L.P.
 Corporate Credit Rating                BBB/Positive/--

New Rating

Enterprise Products Operating LLC
Enterprise Products Partners L.P.
 Short-Term Corporate Credit Rating     A-2          

Enterprise Products Operating LLC
 Commercial Paper                       A-2                



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the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
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