Fitch Ratings has affirmed
The Series A preferred units have been affirmed at 'BB+'. The preferreds are notched down two from the IDR, which is typical for preferreds in the midstream sector. The Rating Outlook is Stable.
The 'BBB' rating reflects its operating and financial exposure to
Key Rating Drivers
Counterparty Exposure: MPC is the largest independent refiner in the
Stable Cash Flow: MPLX's revenues are supported by long-term, fee-based contracts generated under minimum volume commitments (MVC). The MVCs limit MPLX's exposure to direct commodity price risk and also provides stability and visibility into cash flows. For 2022, approximately 90% of revenues in its largest segment, Logistics and Storage (L&S), were generated by MPC under MVC contracts. Several transportation service agreements with MPC were renewed in 2022 with extended terms to 2032. The renewed transportation and storage contracts feature slightly lower MVCs. Inflation escalators are in place on a substantial majority of MPLX's long-term contracts.
Capital Allocation Policy: Fitch views MPLX's capital allocation policy of maintaining leverage below its 4.0x target while returning cash to unitholders primarily through dividend growth as supportive of credit. Leverage at the end of 2022 was 3.5x under management calculations, which differs from Fitch's calculations due to the treatment of the preferred units. Fitch anticipates that MPLX will continue to generate FCF while effectively managing the needs for capital expenditures and unitholder returns.
MPLX currently has around
Leverage Reduction Trend: Fitch calculated MPLX's debt has been trending down toward below
Volume Risk in Gathering & Processing (G&P): The growth in G&P modestly outpaced L&S in both 2021 & 2022 with Marcellus and Permian regions being the main cash flow drivers for this segment. The Marcellus is MPLX's largest G&P region (approximately 65% of 2022's processing production) and was running at 87% processing capacity utilization. Fitch believes 2023 will see some growth as MPLX continues to add processing capacity in Marcellus and Permian to capitalize on the tailwinds from 2022.
Lower utilization and volume risk are key risks in this segment. E&P companies in
Sponsor Relationship: Fitch analyzed the parent-subsidiary relationship between MPLX and MPC, and has determined that their respective IDRs are the same based on the companies' standalone credit profiles. MPC owns approximately 65% of the limited partnership units and the non-economic general partner. The ratings reflect the favorable relationship and MPLX's significant counterparty exposure to MPC. In addition, MPC provides MPLX with a
Derivation Summary
MPLX's 'BBB' rating reflects its significant size and diverse asset base. The partnership generates approximately
MPLX is rated one notch above Plains All America (PAA; BBB-/Positive). Despite its smaller size and less diverse operations, PAA has a strong focus in Permian, the top basin in
Key Assumptions
Fitch price deck, with WTI oil prices of
Capex run rate at
Excess FCF dedicated to distributions and the unit repurchase program over the forecast years. Dividend growth trending toward low-mid single digit growth rate over time, in line with the long-term EBITDA growth.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is not likely to occur given its concentration in business activity and management's leverage target of below 4.0x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Increased EBITDA leverage above 4.5x for a sustained period;
Significant EBITDA contraction from renegotiated gathering and processing contracts, or contracts renewed at much lower rates;
Financial distress and/or a multi-notch downgrade at its largest counterparty, MPC.
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
Sufficient Liquidity: As of
Following an acquisition period wherein MPLX acquired
Issuer Profile
Summary of Financial Adjustments
Fitch adjusts EBITDA to exclude equity earnings and adds distributions from unconsolidated affiliates. Fitch applies 50% equity credit to the
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'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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