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03 Jun 2009
New York, June 03, 2009 --
Moody's Investors Service today downgraded Explorer Pipeline Company's
(Explorer) short-term commercial paper rating to P-2 from
P-1. Today's rating action concludes the review for
possible downgrade initiated on December 10, 2008.
The change reflects Moody's view that the combination of increased
financial leverage at Explorer following it's acquisition of Eagle
Pipeline in 2007 coupled with the lower throughput volumes experienced
in conjunction with the current recession has somewhat weakened the company's
long-term financial profile. We note that for the year-ending
December 31, 2008, Explorer's annual volume of product
shipped fell from approximately 213 million barrels to 170 million barrels
while reported EBITDA of $111 million was $40 million below
2007. As a result, debt to EBITDA increased to 3.9
times at year-end.
Explorer does not have a public underlying long-term rating;
however, when viewed through the methodology for Midstream Energy
Companies & Partnerships ("the methodology"), an
implied rating would likely be in the strong "Baa" rating
range. The methodology considers a number of factors including
scale, price and volume risk exposure, management strategy,
and financial strength using certain key credit metrics. The methodology
does not explicitly consider the strong relationship between Explorer's
owners, who contract for approximately 40% of the volume
shipped on the system; although this continues to provide a positive
rating consideration. Moody's believes the P-2 short-term
rating is now better aligned with the current implied rating level.
Despite the downgrade to P-2, which is a function of the
recent weakness in the company's long-term credit profile,
Explore continues to maintain good liquidity. Explorer has historically
required relatively modest maintenance capital expenditures and these
needs should continue to be comfortably covered by cash from operations.
The company recently closed a new $80 million syndicated revolver
agented by Suntrust Bank. The 3-year facility serves as
a backstop for the company's commercial paper program. The
facility has same-day borrowing availability and borrowings under
the credit agreement are not subject to a general material adverse change
clause. The company also plans to maintain a $40 million
"liquidity cushion" under the line to meet unforeseen needs.
As of March 31, 2009, there were no commercial paper amounts
As of March 31, 2009 the company is in compliance with its current
bank line financial covenants, which include a maximum leverage
ratio (debt / EBITDA) of 4.5 to 1.0 as well as a minimum
EBITDA to Interest ratio of 3.0 to 1.0. Previously,
Explorer was subject to a 3.5 times maximum debt to EBITDA covenant
associated with approximately $150 million of its long-term
private placement debt. The Company obtained a waiver through year-end
2009 to increase this covenant to 4.0 times (3.6 times as
of March 31, 2009 as per compliance calculation). We note
as well that Explorer is precluded from paying dividends until the covenant
calculation is below 3.5 times).
The principal methodology used in rating Explorer was Moody's Midstream
Energy Companies & Partnerships Methodology, which can be found
at www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Credit Policy & Methodologies
Explorer Pipeline Company is a FERC regulated interstate transporter of
petroleum products delivering gasoline, fuel oil and jet fuel from
23 Gulf Coast refineries and import facilities in Texas and Louisiana
into the mid-western United States. Explorer Pipeline owns
and operates a 1,900 mile pipeline system primarily serving Houston,
Dallas, Fort Worth, Tulsa, St. Louis and Chicago.
Based in Tulsa, Oklahoma, it is privately owned by the following
seven companies: Shell Pipeline Company LP (35.97%),
Marathon Oil Company (17.36%), Chevron Pipeline Company
(16.69%), Sunoco Pipeline LP (9.40%),
ConocoPhillips Pipeline Company (7.71%), ACES Pipeline
Investment LLC. (6.80%), and Phillips Investment
Global Infrastructure Finance
Moody's Investors Service
Moody's Downgrades Explorer Pipeline to P-2 from P-1; Outlook Stable
William L. Hess
Global Infrastructure Finance
Moody's Investors Service
No Related Data.
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