TEXT - Fitch affirms Enterprises Products Operating Co LLC
Feb 15 - Fitch Ratings affirms Enterprise Products Operating LLC (EPO)ratings and assigns a Short-Term Issuer Default Rating (IDR) and Commercial Paper Rating of 'F2' to EPO's $2.0 Billion commercial paper program. Additionally, Fitch has affirmed and withdrawn its ratings on TEPPCO Partners, LP (TEPPCO). Fitch affirms the following ratings: EPO --Long Term IDR at 'BBB'; --Senior unsecured at 'BBB'; --Junior subordinated at 'BB+'. Fitch assigns: --Short-Term IDR 'F2' --Commercial Paper 'F2' Fitch affirms and withdraws the following ratings: TEPPCO --Issuer Default Rating (IDR) at 'BBB'; --Senior unsecured at 'BBB'; --Junior subordinated at 'BB+'. The Ratings Outlook is Stable. Approximately $15 billion in debt is affected by today's rating action KEY RATINGS DRIVERS EPO's ratings are supported by the company's large size and scale; the quality and diversity of its portfolio of midstream assets; strong financial performance and conservative policy toward distributions and financings; and increasing percentage of fee-based revenue. EPO's sizable portfolio of midstream assets provides strong consistent cash flow and earnings. EPO's midstream asset base covers most major domestic gas producing basins. Geographic and business line diversity largely insulate EPO from any dynamic shifts in oil and gas production as well as provides ample organic growth opportunities within its operating footprint, limiting the need to make large scale acquisitions for the sake of growth. EPO accesses all of the major gas and oil production regions in the U.S. EPO serves all U.S. based ethylene steam crackers, which are the largest consumers of NGLs. Fitch notes that NGL and crude prices can be very volatile and weakness in crude, NGL, and or fractionation spreads could impact EPO's cash flow and earnings. Fitch recognizes that EPO is in the middle of a significant capital spending program with planned growth spending of $7.3 billion expected for 2013 through 2015. These growth investments are largely focused on fee-based or revenue assured assets which should continue to help lower EPO's exposure to changes in commodity prices. Additionally, Fitch expects EPO's leverage metrics will improve as EPO benefits from the earnings and cash flow associated with project completion and operation. EPO's year-end 2012 financial metrics were strong for the ratings category with EBITDA interest coverage of roughly 5.4x and debt/ EBITDA of 3.6x with a 50% equity treatment for EPO's junior subordinated notes. Fitch expects 2013 metrics to be modestly weaker as the company works through its large capital expenditure program with debt/EBITDA of around 4.0x, but then improves in 2014 to between 3.75 to 4.0x. Distribution coverage remained strong relative to its master limited partnership peers at roughly 1.9x for 2012. Fitch expects distribution coverage to fall slightly for 2013 but remain well above 1.2x. Liquidity remains adequate with cash and availability under its revolver of $3.2 billion at 2012 year end. Upcoming maturities are manageable with $1.2 billion due in 2013, $1.15 billion in 2014, and $1.3 billion due in 2015. EPO is the operating partnership for Enterprise Partners L.P. (NYSE:EPD). EPD as the parent company of EPO guarantees the debt obligations of EPO. Additional Favorable Characteristics for EPO Include: --Conservative distribution practices and supportive ownership; --Beneficial longer term industry trends due to the expected growth in utilization of NGLs by the petrochemical industry as feedstock for ethylene production and the continued focus of natural gas production activity to liquids rich producing basins underpinning a need for midstream services and infrastructure. Credit Concerns for EPO Include: --Significant growth capital expenditures of approximately $7.3 billion through 2015, which will weigh on leverage metrics in the near term; --Exposure, though limited, to commodity price volatility particularly NGL margins. RATINGS SENSITIVITIES Positive: Future developments that may, individually or collectively, lead to positive rating action include: --Maintaining debt/adjusted EBITDA at 3.5x or below on a sustained basis. Negative: Future developments that may, individually or collectively, lead to negative rating action include: --Continued large-scale capital expenditure program funded by higher than expected debt borrowings, causing debt/EBITDA to be above 4.2x on a sustained basis --An increase in gross margin sensitivity to changes in commodity prices.
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