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.
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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
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issued by one of Moody's affiliates outside the EU and is endorsed
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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:
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