Fitch Assigns Initial 'BBB' Ratings to CenterPoint Energy Field Services LP;
NEW YORK -- May 1, 2013
Fitch Ratings has assigned the following initial ratings to CenterPoint Energy
Field Services LP (CEFS):
--Long-term Issuer Default Rating (IDR) 'BBB';
--Senior unsecured debt 'BBB';
--Term loan 'BBB';
--Revolving credit facility 'BBB'.
CEFS is a midstream joint venture between CenterPoint Energy Inc.
(CenterPoint, IDR 'BBB'/Stable) and OGE Energy Corp. (OGE, IDR 'A-'/Stable).
Fitch also affirms the rating of Enogex LLC (Enogex) as follows:
--IDR at 'BBB';
--Senior unsecured debt at 'BBB'.
In addition, Fitch has assigned a 'BBB' rating to Enogex's term loan.
Debt outstanding at Enogex is guaranteed by CEFS. The Rating Outlook for both
entities is Stable.
KEY RATINGS DRIVERS
CEFS's ratings are supported by its strategy to operate with low leverage and
to generate significant earnings from fee-based assets which provide stable
cash flows. The rating is also supported by its size, scope, and diversity of
geography, assets and customers. Furthermore, the midstream assets from
CenterPoint and Enogex are geographically complementary and create a good
strategic fit, creating opportunities for growth and synergies which
management estimates to be over $50 million.
Enogex's assets are primarily located in Oklahoma. CenterPoint's midstream
assets are located in Oklahoma and eight other states. CEFS is an entity with
assets in both dry gas and liquids rich basins.
Ratings Issues: Fitch's credit concerns include commodity and volume exposure;
the potential for strategic spending or acquisition activity to accelerate in
order to support increased growth for distributions; as well as execution and
integration risk for the newly formed entity.
Liquidity: CEFS has established a $1.4 billion unsecured revolving credit
facility due 2018. Fitch expects the revolver will be adequate to meet
liquidity needs. The new bank facility will be used to repay Enogex's revolver
which was terminated with the closing of the CEFS transaction. Financial
covenants include a maximum debt-to-EBITDA ratio of 5.0x (bank agreement
defined EBITDA), expanding temporarily to 5.5x in the event of acquisitions.
Since CEFS is a private limited partnership which CenterPoint and OGE plan to
take public in late 2013 or early 2014, the credit agreement contains language
to address the planned initial public offering. An event of default is
triggered by the change of control of the general partner.
Near-term debt maturities for CEFS include $200 million of Enogex notes
maturing in 2014 and a $250 million Enogex term loan due in 2015.
Leverage: CEFS is targeting leverage of 2.5x, which is low for an MLP with a
'BBB' rating. Fitch believes leverage may rise to the range of 2.5-3.0x by the
end of 2014 depending on how growth opportunities are funded.
Capital Expenditures: As a limited partnership, Fitch expects CEFS to spend
significantly to grow EBITDA to support distributions.
Hedging and Contract Mix: CEFS does not have any material hedges. To mitigate
commodity exposure, the company has a significant amount of gross margins from
fee-based contracts. The company expects that approximately 60% of its gross
margins will come from fee-based businesses.
On May 1, 2013, CenterPoint and OGE closed on the joint venture, CEFS.
CenterPoint contributed its pipelines and field services businesses to CEFS
and OGE contributed 100% of Enogex. Prior to the closing, Enogex was
approximately 80% owned by OGE and 20% owned by ArcLight Capital Partners
CEFS is a private limited partnership formed to ultimately become a publicly
traded master limited partnership (MLP). An IPO is expected to occur in late
2013 or early 2014 subject to capital market conditions. CenterPoint and OGE
each have a 50% interest in the general partner. Incentive distribution rights
are to be split 40% to CenterPoint and 60% to OGE.
Limited partnership interests are owned 59% by CenterPoint, 28% by OGE and 13%
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--Positive rating action is not expected but could occur if leverage dropped
below 2.0x on a sustained basis.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--Material changes in the planned transaction that creates a less favorable
credit profile than Fitch's expectations;
--Leverage (defined as debt to adjusted EBITDA) in excess of 3.75x on a
--Significant increases in commodity-based gathering and processing contracts
which would increase volatility of cash flows.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'Parent and Subsidiary Rating Linkage', Aug. 8, 2012;
--'Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs', April
--'The Top Ten Differences Between MLP and Corporate Issuers', Feb. 19, 2013;
--'Pipelines, Midstream, and MLP Stats Quarterly - Third Quarter 2012', Jan.
-'2013 Outlook: Midstream Services and MLPs', Nov. 29, 2012;
--'Eagle Ford Shale Report: Midstream and Pipeline Sector Economics Driving
Growth', Oct. 15, 2012;
--'Master Limited Partnerships 101', Nov. 1, 2011.
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Kathleen Connelly, +1-212-908-0290
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Peter Molica, +1-212-908-0288
Mark C. Sadeghian, CFA, +312-368-2090
Brian Bertsch, New York, +1 212-908-0549
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