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
"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
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
Plains All American Pipeline L.P.
Corp. credit rating BBB/Stable/--
$500 mil sr unsecd notes due 2023/2043 BBB