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Related Issuers
Rating Action:

Moody's affirms EQM's Ba3 rating; outlook remains negative

28 Oct 2020

Apprroximately $5 billion of rated debt affected

New York, October 28, 2020 -- Moody's Investors Service, ("Moody's") affirmed EQM Midstream Partners, LP's (EQM) Ba3 Corporate Family Rating (CFR), its Ba3-PD Probability of Default Rating (PDR) and Ba3 unsecured notes rating. The Speculative Grade Liquidity (SGL) rating SGL-3 is unchanged. The rating outlook remains negative.

This action follows Moody's ratings affirmation of EQM's largest customer EQT Corporation's (EQT) Ba3 ratings and its outlook change to positive on October 28, 2020.

"EQT's credit quality shows improvement, which lessens the pressure on EQM," commented Sreedhar Kona, Moody's senior analyst. "However, EQM's Mountain Valley Pipeline (MVP) project's completion and EQM's ability to reduce its debt leverage continues to remain uncertain."

Affirmations:

..Issuer: EQM Midstream Partners, LP

.... Probability of Default Rating, Affirmed Ba3-PD

.... Corporate Family Rating, Affirmed Ba3

....Senior Unsecured Notes, Affirmed Ba3 (LGD4)

Unchanged:

..Issuer: EQM Midstream Partners, LP

..Speculative Grade Liquidity Rating, Unchanged SGL-3

Outlook Actions:

..Issuer: EQM Midstream Partners, LP

....Outlook, Remains Negative

RATINGS RATIONALE

The affirmation of EQM's Ba3 CFR follows Moody's affirmation of EQT's Ba3 ratings and the change in its rating outlook to positive. With about 70% of EQM's 2019 revenues derived from EQT, EQM's credit profile is closely tied to that of EQT and the improvement in EQT's credit profile is credit positive for EQM. However, EQM is constrained by the ongoing delays and significant cost overruns at its MVP project. The most recent setback is the temporary stay issued by the Fourth Circuit Court of Appeals, pending review on the use of Nationwide 12 (NWP 12) permit. The Army Corp of Engineers' NWP 12 permit that permits MVP to cross streams and water bodies has been effectively stayed, albeit temporarily at this time, potentially both delaying the pipeline completion and marginally increasing the budget. MVP's cash flow starting in the second quarter of 2021 would have moderated EQM's debt leverage, but that timing is now more uncertain.

EQM is supported by its close proximity to high production volumes in the Marcellus Shale and the critical nature of its pipelines for moving natural gas within the region to long haul pipelines. In early 2020, EQM renegotiated the majority of its Pennsylvania and West Virginia gathering contracts with EQT to enter into a new 15-year gas gathering agreement with longer-term and higher minimum volume commitments. The new contract will enhance EQM's long-term cash flow profile.

EQM's negative outlook reflects the MVP completion uncertainty and consequent potential for debt leverage to increase significantly.

EQM should have adequate liquidity, as reflected in its SGL-3 rating. As of June 30, 2020, the company had $115 million of cash and $1.9 billion of availability under its $3 billion unsecured revolving credit facility due October 2023. EQM's capital spending through 2021 will include capital contributions dedicated to its Mountain Valley Pipeline (MVP) project and other growth projects. EQM will fund its liquidity needs through its operating cash flow and revolver draws. There is one financial covenant governing the credit facility -- a maximum consolidated Debt/EBITDA ratio of 5.75x, stepping down in periodic decreases to 5.0x for the quarter ending on March 31, 2023 and after. The company will maintain compliance with its covenant requirements. There are no debt maturities until August 2022 when the term loan matures.

EQM has a $3 billion revolving credit facility due October 2023 ($485 million of outstanding borrowings as June 30, 2020), $1.4 billion of term loan due 2022 and $5.1 billion of senior unsecured notes with staggered maturities, as of June 30, 2020. EQM's revolver, term loan and senior notes are unsecured and are pari passu. Accordingly, the senior notes are rated Ba3, the same as the CFR.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

EQM's ratings could be downgraded if MVP is not likely to be online through 2021 and if EQM's debt leverage approaches 6x and is likely to remain at that level.

An upgrade of EQM is unlikely given MVP's completion uncertainty. EQM's ratings could be considered for an upgrade if MVP is completed and the project's cash flow strengthens EQM's standalone credit profile by reducing its Debt/EBITDA to below 5x. EQT's ratings would have to be upgraded to consider an upgrade of EQM's ratings.

EQM Midstream Partners, LP is an indirect, wholly owned subsidiary of Equitrans Midstream Corporation that owns and operates interstate pipelines, gathering lines and water assets primarily serving Marcellus Shale production.

The principal methodology used in these ratings was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sreedhar Kona
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 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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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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