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Rating Action:

Moody's downgrades EQM's notes to Ba2; Outlook remains negative

27 Feb 2020

New York, February 27, 2020 -- Moody's Investors Service, ("Moody's") downgraded EQM Midstream Partners, LP's (EQM) Corporate Family Rating (CFR) to Ba2 from Ba1, its Probability of Default Rating (PDR) to Ba2-PD from Ba1-PD and its unsecured notes rating to Ba2 from Ba1. The Speculative Grade Liquidity (SGL) rating remains SGL-3. The rating outlook remains negative.

Concurrently, Moody's downgraded Equitrans Midstream Corporation's (ETRN) CFR to B1 from Ba3, PDR to B1-PD from Ba3-PD and its term loan rating to B1 from Ba3. ETRN's SGL-3 rating remains unchanged. ETRN's rating outlook is negative. All of ETRN's ratings will be withdrawn upon the proposed termination of its term loan, as there will be no rated debt at ETRN.

This action follows EQM's February 27, 2020 announced actions that included a renegotiated gathering contract with its upstream partner EQT Corporation (EQT, Ba1 negative) in combination with the buyback of EQT's shares in ETRN, ETRN's acquisition of EQM's publicly held units and a new dividend policy.

"EQM's announcements including the ETRN/EQM rollup and the termination of the ETRN term loan simplify the company's capital structure, and the revised dividend policy will substantially improve EQM's free cash flow outlook. Yet, these actions result in a significant increase in EQM's financial leverage, the easing of which is fully reliant on the completion of and the cash flow from the Mountain Valley Pipeline (MVP) project," commented Sreedhar Kona, Moody's senior analyst. "Compounding the risk to EQM's credit profile is EQT's weakening credit profile in light of the anemic natural gas price environment and EQM's reliance on EQT as its anchor shipper. EQM's negative outlook reflects that risk."

Debt List:

Downgrades:

..Issuer: EQM Midstream Partners, LP

.... Probability of Default Rating, Downgraded to Ba2-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to Ba2 from Ba1

....Senior Unsecured Notes, Downgraded to Ba2 (LGD4) from Ba1 (LGD4)

Downgraded and To be Withdrawn upon the termination of ETRN term loan:

..Issuer: Equitrans Midstream Corporation

.... Probability of Default Rating, Downgraded to B1-PD from Ba3-PD

.... Corporate Family Rating, Downgraded to B1 from Ba3

....Senior Secured Term Loan, Downgraded to B1 (LGD4) from Ba3 (LGD4)

Outlook Actions:

..Issuer: EQM Midstream Partners, LP

....Outlook, remains Negative

..Issuer: Equitrans Midstream Corporation

....Outlook, remains Negative, to be withdrawn upon the termination of ETRN term loan

RATINGS RATIONALE

The downgrade of EQM's CFR to Ba2 was precipitated by a combination of factors including EQM's elevated debt leverage from the proposed transactions and the execution risk in improving its debt leverage, and EQT's weakening credit profile. EQM's reliance on MVP's cash flow to ease its worsening financial leverage, and execution uncertainty around MVP due to regulatory road blocks pose a substantial risk to EQM's credit profile. EQM's revised dividend policy will help the company retain a meaningful amount of cash; however, without MVP's cash flow the company's financial leverage will remain elevated. Additionally, with about 70% of EQM's 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. The downgrade of ETRN's CFR to B1 follows EQM's downgrade.

EQM's Ba2 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 also constrained by EQT's credit weakness.

ETRN's B1 CFR, two notches below EQM, reflects the company's status as a pure-play holding company without any hard assets and debt that is structurally subordinated to the debt at EQM. ETRN's $600 million term loan's ($594 million outstanding as of December 31, 2019) serviceability is solely reliant on distributions from EQM, a distribution stream which is junior to EQM's substantial financing and operating requirements and its debt.

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 Ba1, the same as the CFR.

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 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 5.0x, stepping up to 5.5x during an acquisition period. Additional borrowings through 2020 will strain EQM's ability to remain in compliance with its covenant, but the company should maintain compliance with its covenant requirements. However, the company risks breaching its covenant if MVP is not online in 2021. There are no debt maturities until August 2022 when the term loan matures.

EQM's negative outlook reflects the continued uncertainty in the completion of MVP and the weakness in EQT's credit profile. ETRN's negative outlook follows EQM's negative outlook.

EQM's ratings could be downgraded if its debt to EBITDA sustains above 6x or if EQT's credit quality deteriorates significantly. ETRN's ratings could be downgraded if EQM's ratings are downgraded.

An upgrade of EQM is unlikely given EQT's negative outlook. EQM's ratings could be considered for an upgrade if EQM reduces its debt to EBITDA to below 5x and there is significant improvement in EQT's credit quality. ETRN's ratings could be upgraded if EQM's ratings are upgraded.

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.

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 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.

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

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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