TEXT - S&P rates Plains All American Pipeline

Mon Dec 3, 2012 12:14pm EST

Related Topics

Dec 3 - Standard & Poor's Ratings Services said today it assigned its 'BBB'
rating to Plains All American Pipeline L.P.'s (Plains) issuance of $500 million
of senior unsecured notes, which the company is issuing in two tranches. As of
Sept. 30, 2012, Plains had about $6.6 billion of reported debt. The company will
use the proceeds to repay outstanding borrowings under its credit facilities and
for general partnership purposes.

Standard & Poor's ratings on Houston-based Plains reflect its "strong" 
business risk profile and "significant" financial risk profile. The business 
risk profile reflects the partnership's increasingly large and diverse network 
of pipelines and terminals and its growing fee-based activities, which provide 
stable cash flow. The financial profile reflects the partnership's track 
record of funding expansion capital projects and acquisitions in a balanced 
manner, but also the inherent cash flow volatility in its supply and logistics 
business segment, and the master limited partnership structure, which gives 
Plains incentive to grow through capital expansions and pay out the vast 
majority of available cash flow to its unitholders each quarter.

We expect Plains' 2012 debt to EBITDA on an adjusted basis (excluding 
short-term debt) to be below 3.8x, continuing its recent strong financial 
performance. Long-term debt to EBITDA was about 3.2x on a trailing 12-month 
basis as of Sept. 30, 2012. This ratio excludes Plains' short-term bank debt 
to the extent short-term hedged inventories cover the borrowing. Including the 
short-term borrowing, debt to EBITDA was 3.6x as of Sept. 30, 2012. We look at 
both ratios, but place less emphasis on Plains' measures that include 
short-term debt. However, we also note that the measures have benefited from 
robust cash flows in its supply and logistics segment that may not be 
sustainable. We use more conservative projections for this segment, 
recognizing its inherent volatility, although we assume a base level of cash 
flow based on the partnership's gathering business at more normalized levels. 
In 2012, the supply and logistics business has performed well and revenues 
have been in the range of $1.80 to $2.50 per barrel. The revenues are mainly 
driven by favorable regional pricing differentials, as well as other 
market-related opportunities. We do not assume these market opportunities to 
be permanent and project that cash flows from this segment will decline in the 
future. 

"The stable outlook on the rating reflects Plains' size and asset diversity, 
the majority contribution of fee-based activities to Plains' cash flow, and 
our expectation that management will continue to target leverage below 4x," 
said Standard & Poor's credit analyst Mark Habib. 

We also expect that any future acquisitions will not materially change the 
partnership's key credit ratios or business profile. We could lower the 
ratings if we expect that the company can sustain the ratio of adjusted 
long-term debt to baseline EBITDA toward 4.5x or if the partnership makes an 
acquisition that increases overall cash flow volatility or its business risk. 
An upgrade is unlikely at this time, but could occur if the partnership 
increases the proportion of revenue coming from its stable, fee-based pipeline 
business while mitigating volumes risk and maintaining a conservative 
financial policy such that we expect Plains to sustain debt to EBITDA below 
3.5x.

RELATED CRITERIA AND RESEARCH
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 
     -- Key Credit Factors: Criteria For Rating The Global Midstream Energy 
Industry, April 18, 2012

RATINGS LIST
Plains All American Pipeline L.P.
Corp. credit rating                      BBB/Stable/--

New Rating
$500 mil sr unsecd notes due 2023/2043   BBB
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.