Fitch Ratings has upgraded
Fitch has also upgraded ENLK's preferred equity rating to 'BB' from 'BB-'/'RR6'.
The upgrade is based on revised projections driven by information from various sources that the volume outlook has improved. EBITDA in 2022 is now forecast to be higher than previously expected. 2023 leverage is now forecast to be approximately 4.0x, slightly better than the previous forecast. The 2023 leverage forecast shows EnLink meaningfully below the 4.5x leverage level that Fitch previously stated justify an upgrade. Year-to-date
The ratings are based on a revenue stream that is mostly fee-based, as well as management's demonstrated commitment to credit quality. The Stable Outlook reflects Fitch's expectations that volumes in the Permian will rise in 2023, that
Key Rating Drivers
Reliable Steady Volume Growth: Forecasts from a variety of sources portray long-term steady growth for the entire E&P industry in the Permian region, which is EnLink's strongest. EnLink has already enjoyed this trend. EnLink throughout year-to-date
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 hurt midstream companies. Steady growth is advantageous for midstream companies, and the year-to-date
Leverage: As noted above, Fitch expects 2023 leverage to be approximately 4.0x. This level, which would be a record low value for the company, in part reflects the slow accumulation of the benefit of moderating certain investing and financing flows a few years ago. In 2022, the company shifted to a moderately acquisitive stance, yet its big recent acquisition features, among other merits, a repetition of a successful practice, i.e., the redeployment of assets. EnLink is experiencing rising EBITDA from its base business, which Fitch expects will continue.
Fee-Based Cash Flow: ENLC has exhibited a focus on fee-based contracts to mitigate commodity price volatility. Fitch expects ENLC will continue to generate about 90% of its gross margin from fee-based services in 2022 and 2023. Gathering and processing (G&P) operations in the Permian and
Parent Subsidiary Linkage: Per Fitch PSL criteria, EnLink's indirect general partner,
Derivation Summary
WES's overall counterparty credit risk is greater than ENLC's, as WES has a large EBITDA exposure to
The difference in counterparty credit risk drives the one notch difference between ENLC and WES.
Key Assumptions
EBITDA rises in 2023 on the continuation of aggregate volume growth trends evident throughout 2022.
Capex rises from recent trough levels, in part driven by harvesting of opportunities related to recent acquisitions.
Distribution growth in the out years in-line with the
Modest common unit re-purchases.
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.
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.'
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Ample Liquidity: As of
The maximum leverage level may rise from 5.0x to 5.5x for four quarters following an acquisition (with the rise subject to limitations). ENLC has no debt maturities until 2024, which consists of
ENLC was in compliance with its covenants as of
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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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