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Rating Action:

Moody's downgrades Antero Midstream's CFR to Ba3, outlook negative

13 Dec 2019

Approximately $1.95 billion of rated debt affected

New York, December 13, 2019 -- Moody's Investors Service ("Moody's") downgraded Antero Midstream Partners LP's (AM) Corporate Family Rating (CFR) to Ba3 from Ba2, Probability of Default Rating (PDR) to Ba3-PD from Ba2-PD and senior unsecured notes to B1 from Ba3. The Speculative Grade Liquidity Rating was unchanged at SGL-3. The rating outlook was revised to negative. This concludes Moody's review of AM's ratings that was initiated on October 21, 2019.

"The downgrade was prompted by the ratings downgrade of Antero Resources Corporation, the primary customer of Antero Midstream," commented Sajjad Alam, Moody's Senior Analyst.

Issuer: Antero Midstream Partners LP

..Ratings Downgraded:

...Corporate Family Rating, Downgraded to Ba3 from Ba2

...Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD

...Senior Unsecured Notes, Downgraded to B1 (LGD5) from Ba3 (LGD5)

..Ratings unchanged:

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

..Outlook actions:

...Outlook, Changed to Negative from Ratings Under Review

RATINGS RATIONALE

AM's downgrade to Ba3 reflects its increased counterparty risk with Antero Resources Corporation (Antero, Ba3 negative). Antero, faced with significant debt maturities, lower commodity prices and a sharp drop in enterprise valuation, is trying to conserve capital and reduce its operating and midstream costs, which will adversely impact AM's earnings. Antero now plans to grow production at a reduced 8%-10% annual rate through 2021 to manage its business within operating cash flow. 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.

AM's Ba3 CFR is supported by its increasing but still manageable financial leverage for its rating, visible organic growth prospects through 2022, solid distribution coverage, and 100% fee based and inflation protected revenue stream. 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. AM's key credit risks include its heavy 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.

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 $1.4 billion of availability under its revolving credit facility as of September 30, 2019. While the revolver had $726 million of drawings at the end of third quarter, AM will likely continue to term out revolver borrowings with unsecured debt to maintain a substantial liquidity cushion as growth spending continues. 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 unsecured notes are rated B1, one notch below AM's Ba3 Corporate Family Rating (CFR), under Moody's Loss Given Default 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.

The negative outlook is consistent with Antero's negative rating outlook. AM's CFR could be downgraded if Antero's CFR is downgraded, AM's leverage rises above 4.5x, or AM's distribution coverage falls below 1x. 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 3.5x and its distribution coverage above 1.1x before considering an upgrade.

The principal methodology used in these ratings was Midstream Energy published in December 2018. 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 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.

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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