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10 Dec 2008
Moody's Places Explorer Pipeline On Review for Possible Downgrade
New York, December 10, 2008 -- Moody's Investors Service today placed the P-1 short-term
commercial paper rating of Explorer Pipeline Company ("Explorer")
on review for possible downgrade. The review for downgrade reflects
the combination of increased financial leverage at Explorer following
it's acquisition of Eagle Pipeline in 2007 and weaker than expected
credit metrics caused by lower throughput volumes in 2008 due to volatility
in petroleum pricing and weather related disruptions. In addition
to the operating concerns noted above, we also note the company's
$100 million backup bank line for its commercial paper program
expires in less than one year (September 30, 2009).
Explorer does not have a public underlying long-term rating;
however, when viewed through the methodology for Midstream Energy
Companies & Partnerships ("the methodology"), a
current implied long-term rating would likely be in the strong
"Baa" / low "A" 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. While 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, such ownership/usage is viewed as a credit positive.
The review of Explorer's short-term rating will consider
the above factors as well as the impact that changes in shipment volumes
will have on the company's financial profile going forward.
Explorer's short-term rating could be downgraded if significant
improvement in leverage does not materialize or if the renewal or extension
to its existing bank agreement is materially delayed. Further,
the potential for a possible covenant violation associated with certain
long-term debt issues will need to be addressed along the restoration
of an appropriate level of financial flexibility typically associated
with a P-1 rating.
Moody's most recent rating action for Explorer was on December 11,
2007 when the short-term rating was confirmed at P-1 with
a stable outlook, following the company's purchase of the Eagle
Pipeline from Citgo Petroleum Corp. in the fourth quarter of 2007
(for approximately $250 million).
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 nearly 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 Company (6.07%).
Global Infrastructure Finance
Moody's Investors Service
William L. Hess
Global Infrastructure Finance
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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