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Global Credit Research - 21 Mar 2011
Approximately $380 million of rated debt affected
New York, March 21, 2011 -- Moody's Investors Service assigned a B3 rating to Crestwood Midstream
Partners LP's (CMLP) proposed offering of $200 million of
senior notes due 2019. Moody's also affirmed Crestwood Holdings
LLC's (Crestwood) B2 Corporate Family Rating (CFR) and the Caa1
rating on its $180 million secured term loan. Crestwood
owns the general partner (GP) interest and the majority of the limited
partner (LP) units in CMLP. The rating outlook is stable.
"The acquisition of Fayetteville Shale and Granite Wash midstream
assets adds significant geographic and customer diversification to Crestwood's
asset base", commented Pete Speer, Moody's Vice
President. "This larger and more diversified business risk
profile is offset by the high valuation paid for the assets and resulting
large increase in debt."
CMLP will use the proceeds of the senior notes offering combined with
a $153 million equity offering to fund a $338 million purchase
of certain natural gas gathering and processing assets located in the
Fayetteville Shale and Granite Wash plays. If certain operational
objectives are met within six months of the closing of the acquisition,
CMLP will pay an additional $15 million to the seller, Frontier
Gas Services, LLC. The Fayetteville assets have long-term,
fixed fee contracts with dedicated acreage from the joint venture of Chesapeake
Energy and BP, and from XTO Energy (subsidiary of Exxon Mobil).
The Granite Wash assets are supported by long-term contracts with
Chesapeake, Linn Energy and Great Plains. Chesapeake has
announced an agreement to sell all of its Fayetteville interests to BHP
Billiton, and therefore BHP will become a primary customer for the
Crestwood's B2 CFR reflects its high proportion of fee based revenues
and experienced management team. The acquisition improves the company's
basin and customer diversification, although it will still be highly
dependent on production volumes from Quicksilver Resources' properties
in the Barnett Shale. The purchase price for the acquired assets
represents a very high multiple of the approximately $18 million
of EBITDA generated in 2010. Even if the acquired assets achieve
their forecasted EBITDA growth in 2011, this still appears to be
a rather full purchase price.
The B2 CFR also incorporates the high consolidated debt levels compared
to CMLP's cash flows. Including Crestwood's $180
million term loan at the holding company level, pro forma Debt/EBITDA
will be approximately 7.2x at December 31, 2010. The
stable outlook incorporates our expectation that the company will achieve
its earnings growth targets and thereby reduce its consolidated leverage
metrics over 2011 and 2012. If consolidated Debt/EBITDA is not
declining towards 6x by the end of 2011 then the outlook could be changed
to negative or the ratings downgraded. A positive rating action
is unlikely in 2011 given the significant reduction in leverage necessary
to maintain the B2 CFR.
The B3 rating on CMLP's proposed senior notes reflects both the
overall probability of default of Crestwood, to which Moody's
assigns a PDR of B2, and a loss given default of LGD 5 (71%).
CMLP also has a senior secured credit facility that is expected to be
increased to $500 million and matures on October 1, 2015.
Crestwood has a $180 million term loan that is secured by its GP
and LP ownership interests in CMLP but is not guaranteed by CMLP.
Under Moody's Loss Given Default methodology, Crestwood's
senior secured term loan is rated Caa1 (LGD 6, 91%,
changed from LGD 5, 81%), due to its structural subordination
to CMLP's credit facility and proposed senior notes. The
CMLP senior notes are rated one notch beneath the B2 CFR due to the size
of the CMLP credit facility's potential priority claim to CMLP's
assets, partially offset by the senior notes structural superiority
to Crestwood's term loan.
The principal methodologies used in this rating were Global Midstream
Energy published in December 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Crestwood Holdings LLC is a private holding company owned primarily by
First Reserve Corporation. The company controls and owns a majority
ownership interest in Crestwood Midstream Partners LP, a publicly
traded midstream master limited partnership that provides natural gas
gathering and processing services.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Thomas S. Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates Crestwood Midstream notes B3
250 Greenwich Street
New York, NY 10007
No Related Data.
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