New York, April 02, 2020 -- Moody's Investors Service, ("Moody's") downgraded
EQM Midstream Partners, LP's (EQM) Corporate Family Rating
(CFR) to Ba3 from Ba2, its Probability of Default Rating (PDR) to
Ba3-PD from Ba2-PD and its unsecured notes rating to Ba3
from Ba2. The Speculative Grade Liquidity (SGL) rating remains
SGL-3. The rating outlook remains negative. This
action follows the ratings downgrade of EQM's anchor shipper EQT
Corporation (EQT) to Ba3 from Ba1 on April 2, 2020.
"EQM's reliance on EQT as its anchor shipper and primary customer,
as well as the weakening of EQT's credit profile in light of the
anemic natural gas price environment is reflected in EQM's downgrade,"
commented Sreedhar Kona, Moody's senior analyst.
Downgrades:
..Issuer: EQM Midstream Partners, LP
.... Probability of Default Rating,
Downgraded to Ba3-PD from Ba2-PD
.... Corporate Family Rating, Downgraded
to Ba3 from Ba2
....Senior Unsecured Notes, Downgraded
to Ba3 (LGD4) from Ba2 (LGD4)
Outlook Actions:
..Issuer: EQM Midstream Partners, LP
....Outlook, remains Negative
RATINGS RATIONALE
EQM's downgrade to Ba3 CFR follows EQT's downgrade to Ba3.
With about 70% of EQM's 2019 revenues derived from EQT,
EQM's credit profile is closely tied to that of EQT and its weakening
cash flow outlook in light of low natural gas prices. EQT also
faces significant refinancing risk in an unsupportive capital markets
environment. EQM's negative outlook follows EQT's negative
outlook.
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, EQM will nevertheless remain
vulnerable to the outbreak continuing to spread and oil and natural gas
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 EQM'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.
EQM should have adequate liquidity, as reflected in its SGL-3
rating. As of December 31, 2019, the company had approximately
$600 million in borrowings under its $3 billion unsecured
revolving credit facility due October 2023. EQM's capital
spending through 2020 will include capital contributions dedicated to
its Mountain Valley Pipeline (MVP) project and other growth projects.
We expect EQM to fund its liquidity needs through its operating cash flow
and revolver draws. There is one financial covenant governing the
credit facility -- a maximum consolidated Debt/EBITDA ratio of 5.75x,
stepping down in periodic decreases to 5.0x for the quarter ending
on March 31, 2023 and after. The company will maintain compliance
with its covenant requirements. However, the company risks
breaching its covenant in 2021 if MVP is not online in 2021. There
are no debt maturities until August 2022 when the term loan matures.
EQM's Ba3 CFR is supported by its close proximity to high production
volumes in the Marcellus Shale and the critical nature of its pipelines
for moving natural gas within the region to long haul pipelines.
Contract renegotiations with EQT have provided EQM with a new 15-year
gas gathering agreement with immediately effective longer-term,
higher minimum volume commitments that will enhance EQM's long-term
cash flow profile. EQM is restrained by its basin concentration
and the multiple delays in completing the MVP project, which is
owned by the joint venture in which EQM is the largest equity owner and
serves as the operator of the pipeline. EQM's credit profile
is constrained by EQT's credit weakness.
EQM has a $3 billion revolving credit facility due 2023,
$1.4 billion of term loan due 2022 and $3.5
billion of senior unsecured notes with staggered maturities, as
of December 31, 2019. EQM's revolver, term loan and
senior notes are unsecured and are pari passu. Accordingly,
the senior notes are rated Ba3, the same as the CFR.
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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
EQM's ratings could be downgraded if EQT's credit quality
deteriorates significantly or if EQM's debt to EBITDA increases
substantially.
An upgrade of EQM is unlikely given EQT's negative outlook.
EQM's ratings could be considered for an upgrade if there is significant
improvement in EQT's credit quality and EQT's ratings are
upgraded. EQM must also maintain its existing stand-alone
credit profile.
EQM Midstream Partners, LP is a master limited partnership that
owns and operates interstate pipelines and gathering lines primarily serving
Marcellus Shale production.
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
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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support provider and in relation to each particular credit rating action
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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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
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for additional regulatory disclosures for each credit rating.
Sreedhar Kona
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
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Moody's Investors Service, Inc.
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