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Rating Action:

Moody's upgrades EnLink's CFR to Ba1 and GIP III Stetson I's CFR to B2

21 Apr 2022

New York, April 21, 2022 -- Moody's Investors Service (Moody's) upgraded EnLink Midstream, LLC's (ENLC) Corporate Family Rating (CFR) to Ba1 from Ba2, Probability of Default Rating (PDR) to Ba1-PD from Ba2-PD and senior unsecured notes rating to Ba1 from Ba2. ENLC's Speculative Grade Liquidity (SGL) Rating remains SGL-2. The rating outlook remains stable.

Moody's also upgraded ENLC's subsidiary, EnLink Midstream Partners, LP's (ENLK, and collectively with ENLC, EnLink) senior unsecured notes rating to Ba1 from Ba2 and perpetual preferred units rating to Ba3 from B1. ENLK's rating outlook remains stable.

Concurrently, Moody's upgraded GIP III Stetson I, L.P.'s (GIP III Stetson I) CFR to B2 from B3, PDR to B2-PD from B3-PD and the senior secured term loan rating to B2 from B3. The term loan borrowers are GIP III Stetson I and GIP III Stetson II, L.P. (GIP III Stetson II, and collectively with GIP III Stetson I, GIP III Stetson). The borrowers are jointly and severally liable with respect to the term loan. The rating outlook remains stable.

"EnLink's upgrade reflects its improving leverage and track record of robust operating cash flow, as well as reduced volumetric risk due to stabilized E&P capital spending amid higher commodity prices," said Amol Joshi, Moody's Vice President and Senior Credit Officer. "The upgrade of GIP III Stetson I, which owns controlling interests in EnLink, reflects the entity benefitting from higher EnLink distributions even though its stand-alone leverage remains high."

Upgrades:

..Issuer: EnLink Midstream, LLC

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

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

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

..Issuer: EnLink Midstream Partners, LP

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

....Pref. Stock Non-cumulative, Upgraded to Ba3 (LGD6) from B1 (LGD6)

..Issuer: GIP III Stetson I, L.P.

.... Probability of Default Rating, Upgraded to B2-PD from B3-PD

.... Corporate Family Rating, Upgraded to B2 from B3

.... Senior Secured Term Loan, Upgraded to B2 (LGD4) from B3 (LGD4)

Outlook Actions:

..Issuer: EnLink Midstream, LLC

....Outlook, Remains Stable

..Issuer: EnLink Midstream Partners, LP

....Outlook, Remains Stable

..Issuer: GIP III Stetson I, L.P.

....Outlook, Remains Stable

RATINGS RATIONALE

EnLink is gradually growing operating cash flow, and this supportive commodity price environment reduces volumetric risk in some of its key basins while improving growth prospects. This should lead to higher operating cash flow and improved resilience due to sustainably lower leverage in 2022, resulting in the upgrade of ENLC's CFR to Ba1. GIP III Stetson I's cash flow has improved since EnLink's distribution increase, resulting in improved interest coverage and the upgrade of its CFR to B2.

ENLC's Ba1 CFR reflects its high proportion of fee-based revenue with cash flow visibility, but subject to meaningful volume risk. While ENLC has increased its equity distributions, those are still significantly below pre-pandemic levels resulting in solid distribution coverage. Good distribution coverage implies that EnLink retains a higher proportion of cash flow, alleviating the pressure of seeking third party debt and dilutive equity to finance capital spending. EnLink also has a diversified gathering & processing (G&P) asset base, and the company self-funds its reduced capital spending levels. The company has a large exposure to the STACK, where it faces volume risk but mitigated by gradually recovering drilling activity. EnLink also has significant exposure to the mature Barnett Shale, where volume declines will also likely reduce due to supportive natural gas prices. EnLink offsets such volume risk through capital intensive growth in other regions such as the Permian, leading to improved cash flow and credit metrics. The majority of EnLink's 2022 capital spending will be focused in the Permian Basin, followed by spending to enhance its Louisiana and other assets. EnLink generates meaningful cash flow from Devon Energy Corporation (Devon, Baa3 stable), and EnLink's rating reflects such customer concentration risk.

This rating action reflects sustained improvement in EnLink's leverage profile supported by largely fee-based revenue and consistent free cash flow generation, which will bolster its capacity to withstand negative credit impacts from carbon transition risks. While financial performance of EnLink will continue to be influenced by industry cycles, compared to historical experience, Moody's expects future profitability and cash flow in this sector to be less robust at the cycle peak and worse at the cycle trough because global initiatives to limit adverse impacts of climate change will constrain the use of hydrocarbons and accelerate the shift to less environmentally damaging energy sources. EnLink could benefit from its efforts to build a carbon capture, transportation and sequestration business around its Louisiana midstream assets.

ENLC's revolver and unsecured notes benefit from an upstream guarantee from ENLK. However, ENLK's unsecured notes do not benefit from downstream guarantees from ENLC or upstream guarantees from operating subsidiaries. EnLink has all its assets at ENLK, and no assets are expected to be held at ENLC, allowing pari passu consideration for obligations at ENLC and ENLK. Furthermore, the obligations of ENLK's subsidiaries are not material in size relative to the unsecured notes to warrant notching below the CFR. The unsecured notes are therefore rated in-line with the Ba1 CFR. However, if the company were to hold material assets at ENLC, ENLC's obligations will have a priority claim to those assets which will pressure the ratings of ENLK's unsecured notes.

ENLC's SGL-2 rating reflects good liquidity, and EnLink should generate positive free cash flow in 2022 supported by its lower capital spending levels. The company is self-funding its capital expenditures and has reduced its reliance on the capital markets. ENLC has a $1.75 billion revolving credit facility (unrated), which is guaranteed by ENLK and matures in January 2024. At December 31, the company had $26 million of cash and $15 million outstanding under its credit facility. The revolver has two material financial covenants, a maximum consolidated leverage ratio of 5x (relaxed to 5.5x for the quarter of an acquisition and the following three quarters) and a minimum consolidated interest coverage ratio of 2.5x. EnLink Midstream Funding, LLC, a bankruptcy-remote special purpose entity that is an indirect subsidiary of ENLC, has an accounts receivable securitization facility (AR Facility) with $350 million outstanding and scheduled to terminate in September 2024. The AR Facility's covenants include a consolidated leverage ratio covenant identical to the revolver. Moody's expects the company to remain in covenant compliance into 2023. EnLink's nearest notes maturity is its approximately $523 million unsecured notes maturing in April 2024.

GIP III Stetson I's B2 CFR reflects its structural subordination to the debt and preferred equity at EnLink, the company's standing as a pure-play entity without any hard assets, and its high stand-alone financial leverage. GIP III Stetson acquired Devon's controlling interests in the EnLink companies in July 2018. GIP III Stetson owns 100% interest in EnLink Midstream Manager (EMM, unrated) and roughly 40% equity interest in ENLC pro forma for ENLK's Series B preferred dilution. GIP III Stetson's ability to service its debt is solely reliant on distributions from EnLink, a distribution stream which is junior to EnLink's substantial financing and operating requirements. GIP III Stetson's leverage on a stand-alone basis is high primarily due to its reduced cash flow due to EnLink's past distribution cut.

The B2 rating on the senior secured term loan is in line with GIP III Stetson I's CFR, reflecting the term loan's first priority claim on the ownership interests in EMM and ENLC and it being the only debt outstanding at the company.

GIP III Stetson should have adequate liquidity, and GIP III Stetson's cash flows have meaningfully improved following EnLink's distribution increase. With limited administrative overhead, GIP III Stetson does not have significant liquidity needs and it should receive adequate distributions from EnLink to cover interest expense and mandatory debt amortization. The financial maintenance covenant is a minimum debt service coverage ratio of 1.1x. There is a 1% mandatory amortization of the term loan per annum, which can be satisfied by the excess cash flow sweep, and 75% excess cash flow recapture when stand-alone leverage is above 5x but stepping down to 50% when standalone leverage is equal to or less than 5x and 0% when standalone leverage is equal to or less than 2.5x. The alternate sources of liquidity are limited given that its ownership interests secure the term loan. GIP III Stetson could sell ENLC units but could be required to use part of the disposition proceeds to prepay a portion of the term loan.

ENLC's and ENLK's outlooks are stable reflecting good liquidity and distribution coverage.

GIP III Stetson I's rating outlook is stable, reflecting Moody's expectation for adequate coverage of interest expense and mandatory debt amortization.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

While Moody's does not expect the ratings to be upgraded in the near-term, EnLink's ratings could be upgraded if its earnings continue to grow, debt/EBITDA approaches 3.5x, consolidated leverage (inclusive of GIP III Stetson debt) approaches 4x, distribution coverage remains robust and its capital structure is further simplified. When calculating credit metrics for purposes of assessing the potential of a ratings upgrade, a portion of EnLink's preferred equity will be included in Moody's adjusted debt.

EnLink's rating could be downgraded if the company's debt/EBITDA exceeds 4.5x, consolidated leverage (inclusive of GIP III Stetson debt) exceeds 5x or distribution coverage significantly deteriorates. Weakness in GIP III Stetson's credit profile would also pressure EnLink's rating.

GIP III Stetson I's rating could be upgraded if EnLink is upgraded and stand-alone GIP III Stetson debt to EBITDA approaches 5x.

GIP III Stetson I's rating could be downgraded if EnLink's rating is downgraded or stand-alone GIP III Stetson interest coverage falls above 2x.

The principal methodology used in these ratings was Midstream Energy published in February 2022 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1285021. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

EnLink Midstream, LLC is a publicly traded company engaged in midstream energy services through its subsidiary EnLink Midstream Partners, LP, including the gathering, processing, fractionation, transportation and marketing of natural gas, natural gas liquids and crude oil in several US regions, including in the STACK, Cana and Arkoma Woodford Shales, Barnett Shale, Permian Basin and Louisiana.

GIP III Stetson owns controlling interests in the EnLink companies.

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 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) 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 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com

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.

Amol Joshi, CFA
VP - Senior Credit Officer
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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