Fitch Ratings has assigned a 'BBB' rating to
Proceeds from the offering will be used for the redemption of preferred units and to repay notes coming due in 2023.
The 'BBB' rating reflects its strategic and operating ties with
Key Rating Drivers
Significant Asset Integration: MPLX is one of the larger midstream issuers in Fitch's rated universe. It benefits from the strategic and operational ties with
Strong Execution and Financial Performance: Benefitting from higher throughput volumes and NGL pricing, leverage continued to trend down, slightly faster than expected under Fitch's forecast. For year-end (YE) 2022, Fitch estimated leverage was 3.5x, lower than Fitch's leverage of 3.9x at YE 2021. Management's leverage at YE 2022 of 3.5x was below its stated target of 4.0x. Fitch expects positive FCF to continue and leverage to remain between 3.4x-3.6x through 2023.
Capital Allocation Program: Fitch views MPLX's policy to unit repurchases, distributions and special distributions within FCF as supportive of credit quality. Management calculated leverage of 3.5x in 2022 and forecast
About
Logistics & Storage (L&S): The L&S segment is the largest segment (66% of 2022 adjusted EBITDA) and primarily serves MPC. For 2022, MPC accounted for approximately 50% of MPLX's total revenues and approximately 90% of the L&S segment revenues. Adjusted EBITDA rose 4% in 2022 versus the prior year, on higher volumes as the industry saw strong global demand following
Volume Risk in Gathering & Processing: The Marcellus and Permian regions remain the main cash flow drivers for this segment with assets in five other basins. The Marcellus is MPLX's largest G&P region and accounted for 65% of 2022's processing production. During 2022, processing capacity utilization was 88% in the region. None of MPLX's other regions had utilization close to this level. Lower utilization and volume risk are key risks in this segment. Fitch believes 2023 will continue growth, but uncertainty in global economic conditions and the
MPC Contract Renewal: Fitch believes the renewal of a set of contracts between MPLX and MPC completed in
Sponsor Relationship: MPLX receives significant benefits from its general partner and sponsor, MPC. MPC owns approximately 65% of the limited partnership units and the non-economic general partner. MPLX's rating reflects its stand-alone credit profile. Because MPC is similarly rated 'BBB,' under Fitch's Parent Subsidiary Criteria, the ratings are not linked. However, ratings reflect the favorable relationship, and strategic and operating ties 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 five notches above
Key Assumptions
Fitch price deck, which reflects oil and natural gas backwardation;
Capex is about
Excess FCF dedicated to remaining stock buyback program and distribution over the forecast years. The distribution grows modestly.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is not likely to occur since MPLX's main counterparty, MPC, is rated 'BBB'. However, a favorable rating action at MPC would not directly result in a favorable rating action for MPLX, since a significant amount of MPLX's cash flows come from gathering and processing.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Increased leverage (total debt with equity credit to operating EBITDA) above 4.5x for a sustained period;
Growth of fee-based gathering and processing agreements, since it would increase the potential for cash flow volatility;
Significant EBITDA contraction from renegotiated gathering and processing contracts, or contracts renewed at much lower rates;
As MPC contracts come up for renewal, reduced volume commitments and/or lower contract rates from MPC, which significantly reduce cash flows and weaken the credit profile;
Reduced liquidity;
Unfavorable rating action 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
The MPLX bank agreement restricts bank-defined leverage from exceeding 5.0x at the end of any quarter. Following an acquisition period wherein MPLX acquired
Issuer Profile
MPLX is a diversified midstream energy partnership that owns pipelines, natural gas processing and natural gas liquids fractionation and processing plants, in addition to crude gathering and natural gas gathering systems in key
Summary of Financial Adjustments
Fitch adjusts EBITDA to exclude equity earnings and adds distributions from unconsolidated affiliates. Fitch applies 50% equity credit to the
Date of Relevant Committee
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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