Fitch Ratings has downgraded Enable Midstream Partners, LP's (Enable)
Long-term Issuer Default Rating (IDR), senior unsecured debt and
revolving credit facility to 'BBB-' from 'BBB'. The Short-term IDR and
commercial paper (CP) rating have been affirmed at 'F3'.
Fitch has also downgraded Enable Oklahoma Intrastate Transmission, LLC's
(Enable Oklahoma, formerly known as Enogex LLC) Long-term IDR and senior
unsecured rating to 'BBB-' from 'BBB'. Debt outstanding at Enable
Oklahoma is guaranteed by Enable.
The Rating Outlook for both entities is Stable. Today's rating actions
affects $3.2 billion of debt outstanding.
KEY RATING DRIVERS
The downgrade reflects Fitch's concerns about Enable's leverage, which
has been increasing above previously expected targets. Other concerns
include Enable's exposure within commodity price sensitive gathering and
processing operations, which accounted for 62% of gross margins in the
third quarter of 2015. This segment has been negatively affected by low
natural gas and natural gas liquids prices. Enable has also been
impacted by the low natural gas price differentials for the
transportation and storage segment. Additional concerns include a lack
of geographic diversification and Enable's large dependence on gathering
and processing in the Anadarko Basin.
In addition, the downgrade reflects the challenging capital market
environment and the partnership's plan for significant spending in 2016.
In late 2015, the MLP forecasted growth capex of $600 to $800 million
for 2016. There are no debt maturities until $363 million of notes are
due in 2017. Like other master limited partnership (MLPs), Enable's
access to the capital markets is more restricted than in the recent past
when commodity prices were stronger. With Enable's high cost of equity,
Fitch does not anticipate that it will access the equity markets until
there is significant improvement in. However, liquidity should be
sufficient for the near term with cash and availability on Enable's
revolver of approximately $1.3 billion as of Sept. 30, 2015.
The 'BBB-' rating and Stable Outlook are supported by Enable's strategy
to generate significant earnings from fee-based assets which Fitch
expects to provide relatively stable earnings and cash flows. The rating
is also supported by the partnership's size, diversity of assets and
customers. Enable is an entity with assets in both dry gas and liquids
rich basins. Furthermore, Enable is an MLP with two investment grade
Should Enable's liquidity and capital market access further deteriorate,
Enable would need to take steps to maintain adequate liquidity and
reasonable leverage metrics at or near current levels, through decreased
capital spending, distribution cuts, or increased sponsor support to
maintain the rating and Stable Outlook. Failure to do so would likely
result in Fitch taking a negative rating action.
Leverage: Enable's leverage has been increasing during the more
challenging commodity environment. For the LTM ending on September 30,
2015, adjusted leverage (defined as debt to adjusted EBITDA) was 3.87x
which is up significantly from the end of 2014 when it was 2.95x. The
higher leverage is attributed to both lower EBITDA and higher debt.
Adjusted EBITDA for the LTM was $820 million, down from $862 million in
2014 primarily driven by lower earnings in Enable's G&P segment. Over
the same time frame, debt rose $625 million to $3.2 billion as Enable
continued to pursue growth spending opportunities. Fitch forecasts
leverage to rise in 2016 given ongoing weakness in gas prices and a
moderate reduction in growth spending. Fitch expects yearend adjusted
leverage to be in the range of 4.25-4.75x for 2016 and remaining in that
range over the next few years.
Spending: Even in today's challenging environment, Fitch expects Enable
to continue spending to grow distributable cash flows and to support
distributions increases. During the latest-12-months (LTM) ending Sept.
30, 2015, Enable spent $905 million of total capex. As of November 2015,
Enable forecasted 2016 contracted growth capex to be in the range of
$600 million to $800 million. Another $300 million to $500 million may
be spent on other growth opportunities. Fitch believes these spending
levels may be reduced given the challenging environment and reduced
production from upstream producers, yet remain fairly robust. The
projects being pursued are generally supportive of Enable's credit
profile with a focus on projects supported by contracted cash flows with
investment grade counterparties. Significant projects include processing
plants in Oklahoma.
Contract Mix: In 2016, Enable projects approximately 90% of gross
margins will come from fee-based or hedged arrangements. Commodity based
gross margins are primarily from the partnership's gathering and
processing segment. On average, Fitch expects this segment to account
for approximately 60% of gross margins. Roll-over risk remains a
concern, particularly, as commodity prices remain lower for longer and
On May 1, 2013, Enable was formed as a midstream joint venture between
CenterPoint Energy Inc. (CenterPoint, IDR 'BBB'/Stable Outlook) and OGE
Energy Corp. (OGE, IDR 'A-'/Stable Outlook). Enable is a MLP owned 55.4%
by CenterPoint, 26.3% by OGE and 18.3% by the public. CenterPoint and
OGE each have a 50% management interest in the general partner.
Incentive distribution rights are split 40% to CenterPoint and 60% to
Fitch's key assumptions within the rating case for Enable include:
--Despite significant capex spending in 2015, EBITDA in 2016 is likely
to approximate levels seen in 2015 due to the challenging commodity
--Debt increases in 2016 given unattractive equity markets which
restrict the issuance of common equity;
--Capex is reduced from spending seen in 2015 given market conditions;
--No assumptions are made for acquisitions.
Positive: Future developments that may, individually or collectively,
lead to positive rating action include:
--Positive rating is not expected but could occur if adjusted leverage
were expected to be below 4.0x on a sustained basis.
Negative: Future developments that may, individually or collectively,
lead to negative rating action include:
--Material changes in Enable's strategy and/or inability to maintain low
leverage while funding significant capex;
--Adjusted leverage in excess of 5.0x on a sustained basis;
--Significant increases in commodity-based gathering and processing
contracts which would increase the volatility of cash flows;
--Reduced liquidity or lack of access to capital markets may also result
in negative rating action.
As of Sept. 30, 2015, Enable had $1.3 billion of liquidity. It had $5
million of cash on the balance sheet. In addition, it had $1.3 billion
of availability on its $1.75 billion revolving credit facility which
extends through 2020. The revolver had no borrowings and $2 million of
letters of credit outstanding. Commercial paper borrowings of $432
million reduced revolver availability. Enable may issue up to $1.4
billion of commercial paper which is backed back the revolving credit
facility. There are no near term debt maturities until $363 million of
notes payable to an affiliate, CenterPoint Energy Resources Corp. (CERC;
IDR BBB/Stable Outlook), become due in 2017.
The bank agreement includes a financial covenant which restricts
debt-to-EBITDA ratio from exceeding of 5.0x (bank agreement defined
EBITDA), expanding temporarily to 5.5x in the event of acquisitions.
Fitch believes that Enable will have adequate cushion for its leverage
FULL LIST OF RATINGS
Fitch Ratings has taken the following rating actions for Enable
Midstream Partners, LP (Enable):
--Long-term IDR downgraded to 'BBB-' from 'BBB';
--Senior unsecured debt and revolver downgraded to 'BBB-' from 'BBB';
--Short-term IDR and commercial paper (CP) rating affirmed at 'F3'.
Fitch also downgraded the rating of Enable Oklahoma Intrastate
Transmission, LLC (formerly known as Enogex LLC) as follows:
--Long-term IDR downgraded to 'BBB-' from 'BBB';
--Senior unsecured debt downgraded to 'BBB-' from 'BBB'.
The Rating Outlook for both entities is Stable.
Additional information is available on www.fitchratings.com
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
Short-Term Ratings Criteria for Non-Financial Corporates (pub. 13 Aug
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