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Rating Action:

Moody's downgrades Antero Midstream's CFR to B2, notes to Caa1

02 Apr 2020

Approximately $1.95 billion of rated debt affected

New York, April 02, 2020 -- Moody's Investors Service ("Moody's") downgraded Antero Midstream Partners LP's (AM) Corporate Family Rating (CFR) to B2 from Ba3, Probability of Default Rating (PDR) to B2-PD from Ba3-PD and senior unsecured notes to Caa1 from B1. The Speculative Grade Liquidity Rating was unchanged at SGL-3. The rating outlook remains negative. This action follows the ratings downgrade of AM's primary customer, Antero Resources Corporation (Antero or AR), to B3 on April 2, 2020.

"The downgrade reflects a sharp deterioration in credit quality of Antero Resources Corporation, the primary E&P customer of Antero Midstream," said Sajjad Alam, Moody's Senior Analyst. "Antero's slowing growth and refinancing challenges will pressure AM's future cash flow, and AR could look to extract more concessions from AM if AR continues to struggle with its heavy debt burden and serial debt maturities."

Issuer: Antero Midstream Partners LP

..Ratings Downgraded:

...Corporate Family Rating, Downgraded to B2 from Ba3

...Probability of Default Rating, Downgraded to B2-PD from Ba3-PD

...Senior Unsecured Notes, Downgraded to Caa1 (LGD5) from B1 (LGD5)

..Ratings unchanged:

...Speculative Grade Liquidity Rating, Remains unchanged at SGL-3

..Outlook actions:

...Outlook, Remains Negative

RATINGS RATIONALE

AM's key credit risks include its reliance on a single customer, narrow geographic focus in Appalachia, indirect exposure to weak natural gas and NGLs prices, and still significant, albeit reduced, future growth capital requirements to support Antero's growth. While AM's standalone capital structure appears sustainable, the high uncertainty around Antero's businesses will continue to pressure AM's ratings, which is reflected in the negative outlook. AM has long term fee-based gathering, compression, fractionation and water handling contracts with Antero, and substantially all of Antero's current and future acreage have been dedicated to AM.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The midstream sector will be one of the sectors affected by the shock given its sensitivity to production volume and indirect exposure to oil and gas prices. While midstream companies may not see an immediate sharp decline in revenue due to their long-term contractual protection, AM will nevertheless remain vulnerable to the outbreak continuing to spread and oil and natural demand remaining weak. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action partially reflects the impact on AM's credit quality of the breadth and severity of the oil demand and supply shocks, and the broad deterioration in credit quality it has triggered.

AM has adequate liquidity, which is reflected in the SGL-3 rating. The company plans to spend at least 50% less capital in 2020 based on Antero's tempered development plans reducing the need for external capital. We expect any projected funding gap to be financed with a balanced mix of debt and retained cash flow. AM had minimal cash and $1.17 billion of availability under its $2.13 billion committed revolving credit facility at December 31, 2019. The revolver expires on October 26, 2022 and Moody's expects AM to remain well in compliance with the financial covenants through 2021. The partnership has limited alternate liquidity given its assets are encumbered.

AM's B2 CFR reflects its elevated counterparty risk with Antero Resources Corporation, which is contending with a heavy debt burden and $2.6 billion of debt maturities through 2023. Sharply lower commodity prices and the inability to refinance have dramatically reduced Antero's enterprise valuation. As Antero tries to cut its operating, development and midstream costs, it could adversely impact AM's revenue. Antero has already negotiated lower fees and reduced fresh water supply with AM, which will lead to slower earnings growth and higher financial leverage relative to our prior expectations. Additionally, despite these negative developments, AM continues to pay very high dividends, which will weigh on ratings. AM's CFR is supported by low financial leverage for its rating, solid distribution coverage, 100% fee-based and inflation protected revenue stream and a history of strong organic growth.

AM's unsecured notes are rated Caa1, two notches below AM's B2 Corporate Family Rating (CFR), under Moody's Loss Given Default for Speculative-Grade Companies methodology. The notching reflects the large $2.1 billion secured revolver in AM's capital structure that has an all-asset pledge and a priority-claim to all of AM's assets.

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

AM's CFR could be downgraded if Antero's CFR is downgraded, AM's leverage rises above 6x. An upgrade of AM's CFR will depend on Antero's CFR moving to a higher rating level. Moody's will also look for AM to maintain its debt to EBITDA ratio below 5x and its distribution coverage above 1x before considering an upgrade. The negative outlook reflects the high continuing counter-party risk involving Antero.

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.

Antero Midstream Partners LP is a wholly owned subsidiary of Antero Midstream Corporation, which is a Denver, Colorado based public company with gathering, compression, processing, fractionation, and water handling and treatment assets in northwest West Virginia and southern Ohio.

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.

At least one ESG consideration was material to the credit rating outcome announced and described above.

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.

Sajjad Alam
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.
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