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Rating Action:

Moody's assigns Caa2 rating to EPIC Y-Grade's extended term loan; affirms Caa2 CFR

16 Oct 2020

New York, October 16, 2020 -- Moody's Investors Service ("Moody's") affirmed EPIC Y-Grade Services, LP's (EPIC Y-Grade) Corporate Family Rating (CFR) at Caa2 and Probability of Default Rating (PDR) at Caa2-PD. Concurrently, Moody's assigned a Caa2 rating to the senior secured term loan that EPIC Y-Grade extended to 2027 (issued under the 2018 credit agreement) and affirmed the Caa2 rating of the senior secured term loan due 2027 (issued under the 2020 credit agreement) and the B1 rating of the senior secured revolver due 2025. Moody's upgraded the rating of the senior secured term loan due 2024 to Caa2 from Ca. The outlook remains negative.

"All of EPIC Y-Grade's term loans are now rated the same since intercreditor agreements were amended in September to equalize their payment priority," said Jonathan Teitel, a Moody's Analyst.

Upgrades:

..Issuer: EPIC Y-Grade Services, LP

....Senior Secured 1st Lien Term Loan, Upgraded to Caa2 (LGD4) from Ca (LGD5)

Assignments:

..Issuer: EPIC Y-Grade Services, LP

....Senior Secured 1st Lien Term Loan, Assigned Caa2 (LGD4)

Affirmations:

..Issuer: EPIC Y-Grade Services, LP

.... Probability of Default Rating, Affirmed Caa2-PD

.... Corporate Family Rating, Affirmed Caa2

....Senior Secured Revolving Credit Facility, Affirmed B1 (LGD1)

....Senior Secured 1st Lien Term Loan, Affirmed Caa2 (LGD4 from LGD3)

Outlook Actions:

..Issuer: EPIC Y-Grade Services, LP

....Outlook, Remains Negative

RATINGS RATIONALE

In September 2020, the vast majority of the remaining term loans due 2024 under EPIC Y-Grade's original 2018 credit agreement were extended to 2027, which Moody's views as effectively a separate issuance and has assigned a Caa2 rating. A small amount of term loans due 2024 remain outstanding, and those term loans were allowed to remain pari passu with the other terms loans rather than be subordinated in payment priority as originally contemplated in the 2027 for 2024 term loan exchange offer. As a result, the remaining 2024 term loans have been upgraded to Caa2.

All of EPIC Y-Grade's term loans (both term loans maturing 2027 issued under the 2018 and 2020 credit agreements, and the remaining 2024 term loan maturities) are now rated Caa2 which is the same as the CFR because they comprise the vast majority of the company's debt, rank equally and have the same payment priority. The company's senior secured revolver due 2025 is first in payment priority over the term loans and that priority combined with its small size relative to the term loans results in it being rated B1.

EPIC Y-Grade's Caa2 CFR reflects elevated leverage and constrained liquidity. Near-term cash needs are supported by capital contributions and proceeds from the sale of a joint interest in certain assets. However, funding of capital spending in 2021 is uncertain. EPIC Y-Grade has flexibility on construction of its second fractionator but it would require more capital which could increase leverage. With a fully used $40 million revolver, Moody's views EPIC Y-Grade's liquidity as weak given the uncertainties around capital funding in 2021 notwithstanding relief on financial covenants that were suspended until 2023. EPIC Y-Grade's contracts are fixed fee and mostly long-term leaving the company with limited direct commodity price risk. However, only a portion of cash flow is underpinned by minimum volume commitments leaving the company exposed to volume risks in the low commodity price environment and amid reduced upstream capital spending.

The negative outlook reflects risks around funding for capital spending in 2021, the prospect for additional debt, very low EBITDA in 2020 and elevated leverage into 2021.

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

Factors that could lead to a downgrade include erosion of liquidity, increased debt or increased risk of default.

Factors that could lead to an upgrade include improved liquidity including a funded capital program without incremental debt, and significant EBITDA growth and correspondingly lower leverage.

EPIC Y-Grade is a privately-owned midstream energy business with NGL pipelines running from the Permian Basin to Corpus Christi. The company is majority-owned by Ares Management with ownership stakes also held by Noble Midstream Partners and an investor group led by FS Investments.

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.

Jonathan Teitel, CFA
Asst Vice President - 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.
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