Fitch Ratings has affirmed
Fitch has also affirmed ENLK's preferred equity rating at 'BB'. ENLK guarantees the debt at EnLink. The Rating Outlook for both entities is Stable.
The ratings are based on a revenue stream that is almost entirely fee-based, as well as management's demonstrated commitment to credit quality and good record of cost control. A concern is volumetric risk. The Outlook is also based on an expectation of continued balanced financial policies.
Key Rating Drivers
Reliable Volume Growth: Forecasts for the Permian region from a variety of sources project long-term steady volume growth for the resident E&P industry. The Permian region is EnLink's largest segment, and the company has performed well there with YTD volume increases through
Since midstream companies have to spend capex 10-18 months in advance of new planned wells, the previous era of aggressive growth plans featured many 'busts' that thwarted expansion efforts. Steady growth is advantageous for midstream companies, and YTD
Fee-Based Cash Flow: EnLink's EBITDA mainly comes from fee-based contracts and fee-type commercial activities (purchase/re-sell). Fitch expects the company will generate approximately 90% of its gross margin from fee-based services in 2024. Gathering and processing (G&P) operations in the Permian and
Solid Leverage: Fitch forecasts that EnLink's 2024 leverage will be approximately 4.0x. Based on Fitch's 4Q23 forecast, EnLink was, in Fitch's annual forecast, strongly FCF-positive in 2023. Cash generation was supplemented by the divestment of the
Parent Subsidiary Linkage: Fitch regards co-borrowers
Derivation Summary
Plains All American (BBB/Stable) is a useful comparable for EnLink given its geographical diversity and high percentage of EBITDA from a variety of fee-based activities.
Plains has some minimum volume commitments, mainly on its
Fitch forecasts Plains All American's leverage to be below 3.5x in 2024 vs. 4.0x for EnLink.
Plains All American has a heavy focus on crude oil, whereas EnLink has more of a presence in the natural gas infrastructure chain. Tensions in the
The companies have similar financial policies concerning leverage.
The difference in rating is mainly due to Fitch's assesement that Plains All American has moderately less business risk.
Key Assumptions
EBITDA profile is approximately level.
Distribution growth in the out years in-line with the
Capex remains higher than in the trough period of 2020-2022 inclusive.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Leverage sustained below 3.5x underpinned by stable performance across the segments, and also in conjunction with borrower
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A significant change in cash flow stability, including a move away from the current profile of fee-based profits;
Leverage expected to be above 4.5x on a sustained basis.
A sustained change in financial policies which tilts strongly to shareholder 'rewards.'
A negative rating action of the borrower
Liquidity and Debt Structure
Ample Liquidity: EnLink had
The revolving credit facility contains a financial covenant limiting leverage, defined as consolidated net indebtedness to consolidated EBITDA, to 5.0x. This maximum may temporarily increase to 5.5x following and acquisition, subject to certain conditions. EnLink was in compliance with its covenants as of
Near-term refinancing needs are manageable with maturities totaling
Issuer Profile
Summary of Financial Adjustments
Fitch applied 50% equity credit and 50% debt credit to ENLK's preferred equity securities.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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