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10 Aug 2010
Affirms CFRs of Targa Resources Partners LP and Targa Resources, Inc.
New York, August 10, 2010 -- Moody's Investors Service assigned a B1 rating to Targa Resources Partners
LP (TRP) proposed $250 million senior unsecured notes due 2018.
Moody's also upgraded the rating of TRP's senior notes due
2016 and 2017 to B1, and affirmed TRP's Corporate Family Rating
(CFR) of Ba3 and TRP's SGL-3 Speculative Grade Liquidity
In addition, Moody's affirmed the Targa Resources, Inc.
(TRI) B1 Corporate Family Rating, the B1 rating for TRI's
senior secured term loan, and TRI's SGL-2 Speculative
Grade Liquidity Rating. The outlook for TRP and TRI is stable.
The affirmations follow TRP's announcement that the partnership plans
to issue approximately $160 million of common units and $250
million of senior unsecured notes, the proceeds of which will be
used to purchase the Versado System from TRI for approximately $230
million. The Versado System is comprised of TRI's 63%
interest in Versado Gas Processors, LLC (VGP). The remaining
37% interest of VGP is owned by Chevron U.S.A.
Inc. and is not affected by this transaction. VGP's
assets include three gas processing plants along with their associated
natural gas gathering systems. They are located in the Permian
Basin and extend from southeastern New Mexico into West Texas.
The $230 million acquisition is viewed as a neutral event from
a credit standpoint based on the purchase price multiple of the reported
operating margin and the resulting leverage statistics.
TRP's Ba3 CFR reflects its scale and market position. Relative
to its rating peers, TRP is larger than most as measured by total
assets and by adjusted EBITDA. However, despite its diversified
earnings stream, TRP's rating is constrained by its exposure
to commodity prices and the resulting variability of cash flow,
by its leveraged balance sheet, and by its implicit distribution
policy as a master limited partnership. The B1 rating for TRP's
proposed senior unsecured notes reflects both the overall probability
of default of TRP, to which Moody's assigned a Ba3 rating,
and a loss given default of LGD 5 (79%). The rating also
takes into account the higher percentage of senior unsecured debt in the
partnership's capital structure after completion of the note offering.
Because the size of the planned equity and debt offerings is in excess
of the VGP purchase price, the partnership's liquidity position
will be marginally, but positively, impacted. Upon
the closing of the financing transactions, and after the VGP acquisition,
Moody's estimates that TRP's liquidity will be greater than $400
million likely in the form of availability under the senior secured revolving
credit facility. This facility was recently amended and restated
in July. The new terms include an extension in the maturity to
July 15, 2015 and revised financial (maintenance) covenants as follows:
total leverage ratio no greater then 5.5x, senior leverage
ratio of no greater than 4.0x, and an interest coverage ratio
of at least 2.25x. These covenant levels allow for a significant
degradation in financial performance of TRP prior to being triggered.
While positive from a liquidity standpoint, this potential for degradation
also factors into the LGD determination and the notching of the bonds
in relation to the CFR.
TRI will use a portion of the VGP sales proceeds to reduce borrowings
under its existing senior secured term loan and for other general corporate
purposes. The B1 CFR rating of TRI and B1 rating for the secured
term loan take into account the company's growing reliance on partnership
distributions as the primary source of cash flow and debt service.
The SGL-2 Speculative Grade Liquidity Rating reflects the free
cash flow after debt service and credit availability for TRI.
The last rating action on TRP occurred on July 28, 2009 when its
CFR, PD and SGL were affirmed. The last rating action on
TRI occurred on December 15, 2009 when Moody's assigned a rating
to TRI's senior secured debt and affirmed the CFR at B1.
The principal methodology used in rating TRP and TRI was Moody's Midstream
Energy Companies and Partnerships Rating methodology published in September
2007. The methodology is available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Targa Resources Partners LP is headquartered in Houston, Texas.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns a B1 rating to Targa's proposed $250 million senior notes
250 Greenwich Street
New York, NY 10007
No Related Data.
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