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Rating Action:

Moody's confirms Western Midstream at Ba1, outlook developing

02 Aug 2019

Approximately $4.6 billion of rated debt affected

New York, August 02, 2019 -- Moody's Investors Service ("Moody's") confirmed Western Midstream Operating, LP's (WES) ratings, including its Ba1 Corporate Family Rating (CFR) and its Ba1 senior unsecured notes ratings. WES's outlook was changed to developing and its Speculative Grade Liquidity rating was affirmed at SGL-3. This concludes the ratings review initiated on April 12, 2019.

This rating action follows Occidental Petroleum Corporation's (OXY) downgrade to Baa3 with a stable outlook in connection with its announcement of a planned debt issuance to partially finance the cash portion of its acquisition of Anadarko Petroleum Corporation (Anadarko) and the expected closing of that acquisition on or about August 8. OXY also announced a consent solicitation and offer to exchange newly issued OXY notes for Anadarko's and its guaranteed subsidiaries' notes outstanding. The Ba1 ratings for Anadarko and its guaranteed subsidiaries remain on review for upgrade pending the completion of the consent solicitation and exchange transactions. If the consent solicitation succeeds and all or substantially all of Anadarko's notes and those of its guaranteed subsidiaries are retired through the exchange transaction, then its ratings are likely to be withdrawn. Following the consent solicitation, Anadarko and its guaranteed subsidiaries are not expected to have any future stand-alone financial reporting requirements, and therefore any notes that remain outstanding for Anadarko or its guaranteed subsidiaries will have their ratings withdrawn for lack of sufficient information for Moody's to maintain those ratings. The Anadarko shareholder vote is scheduled for August 8.

"The confirmation of WES's Ba1 ratings with a developing outlook reflects the uncertainty regarding its future ownership, governance and financial policies," commented Pete Speer, Moody's Senior Vice President. "While the effective counterparty ceiling for WES's rating will be lifted to Baa3 through OXY's pending acquisition of Anadarko and debt exchange, possible transactions by OXY to monetize or divest some or all of its WES ownership could result in detrimental changes to WES's credit profile."

Outlook Actions:

..Issuer: Western Midstream Operating, LP

....Outlook, Changed To Developing From Rating Under Review

Confirmations:

..Issuer: Western Midstream Operating, LP

.... Probability of Default Rating, Confirmed at Ba1-PD

.... Corporate Family Rating, Confirmed at Ba1

....Senior Unsecured Shelf, Confirmed at (P)Ba1

....Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 (LGD4)

Affirmations:

..Issuer: Western Midstream Operating, LP

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

RATINGS RATIONALE

WES's Ba1 CFR reflects the benefits of it having a high proportion of fee-based revenues that provide cash flow stability, good commodity and basin diversification, and relatively low financial leverage. The partnership's direct commodity price exposure is limited, but it does have exposure to fluctuations in production volumes, particularly in its large gathering business. Following the midstream asset acquisition from Anadarko in the first quarter of 2019, the partnership continues to have solid growth visibility from organic projects tied to its operations in the Delaware. While many of its credit attributes could support a Baa3 rating, WES's high customer concentration risk with Anadarko combined with Anadarko's controlling ownership has historically limited its rating to that of Anadarko's.

The pending exchange of APC debt into OXY debt, expected to close in early September, would lift the effective counterparty risk ceiling applicable to WES's rating to OXY's Baa3 rating. However, OXY's ultimate plans and structure for its ownership and control of WES and its general partner (GP) are not yet solidified. This uncertainty regarding WES's future ownership, governance and financial policies is captured in our developing outlook for WES's ratings.

WES's financial leverage was increased by the purchase of assets from Anadarko. Despite the partnership's recent negative revision to its EBITDA guidance for 2019 because of a slower than expected volume ramp up in the Delaware Basin, WES's Debt/EBITDA could still decline to below 4x in 2020 as previously expected. If OXY retains control of WES with its credit metrics returning to their historical levels (Debt/EBITDA at or under 4x with 1.2x distribution coverage), WES could be upgraded to Baa3. However, if all or a portion of the GP ownership and/or a large limited partner ownership in WES was sold to a third party, the new ownership would have to be clearly supportive of investment grade financial policies at WES and not add substantial debt at WES or an entity above WES that would have to be supported by WES's distributions. In the event that all or a large ownership stake in WES is sold to a third party, any debt added at a general partner or other holding company above Western would be a consideration in our determination of WES's credit rating.

WES's Ba1 rating could be downgraded if Debt/EBITDA rises above 5x or if distribution coverage falls below 1x. If the rating of its primary counterparty, OXY, were to fall below Ba1 then WES's ratings could be downgraded.

Moody's expects Western to maintain adequate liquidity through mid-2020, consistent with its SGL-3 rating, primarily because of its borrowing capacity on its $2 billion committed bank revolving credit facility. The cash component of the asset purchase from Anadarko was funded by a $2 billion 364-day senior unsecured term loan facility. In July 2019, the partnership extended the term loan maturity to December 31, 2020 and increased its committed capacity to $3 billion. The partnership has until September 30, 2019 to borrow that additional $1 billion, which Moody's expect the partnership to do to fund its growth capital spending and maintain adequate liquidity to give more time for resolution to the uncertainty regarding OXY's future ownership of Western. Once this uncertainty is resolved, Moody's expects that the term loan will be refinanced.

The revolving credit facility is unsecured, matures in February 2024 and has a financial maintenance covenant limiting leverage (Debt/ EBITDA) to 5x. Western had ample headroom for compliance with the revolver covenant at March 31, 2019 and Moody's expects that to continue into 2020 despite the increased leverage from the asset dropdown since the credit facility provides for certain pro forma adjustments for acquisitions and capital expenditures. None of Western's assets are encumbered so the partnership could sell assets to raise cash for liquidity. Western has no significant senior notes maturity prior to 2021.

The principal methodology used inthese ratings was Midstream Energy published in December 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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

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.

Peter Speer
Senior Vice President
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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