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 November 30, 2015 - 12:05 PM EST
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Fitch Rates NGL Energy's Senior Unsecured Note Offering Due 2020 'BB-'/RR5

Fitch Ratings has assigned NGL Energy Partners LP's (NGL) issuance of senior unsecured notes due 2020 a 'BB-' rating. The Recovery Rating is RR5. The notes are to be co-issued with NGL Energy Finance Corp. and are to rank pari passu with the partnership's senior unsecured debt. Proceeds are to be used to repay revolver borrowings and for general partnership purposes.

Fitch currently rates NGL's Long Term Issuer-Default Rating (IDR) 'BB'. NGL and NGL Energy Finance Corp. senior unsecured debt is rated 'BB-'/RR5. The Rating Outlook is Stable.

KEY RATING DRIVERS

The 'BB' IDR rating is supported by NGL's strategy to maintain strong distribution coverage and operate diverse assets which are located throughout the U.S. The partnership has significantly expanded in size and scale since its IPO over four years ago. NGL has significant senior secured debt ahead of its senior unsecured debt and therefore, the senior unsecured debt is notched down one from the IDR to 'BB-' and the Recovery Rating is RR5. The RR5 indicates a below average recovery in the event of a default.

Concerns include NGL's quick growth through multiple acquisitions over a short period of time and high leverage. Fitch believes that growth spending, including acquisitions, will continue to be significant for NGL as it seeks to expand its operations and increase distributions paid to unitholders. NGL's management has a solid history of making acquisitions.

Diverse Operations: NGL's assets are diverse and comprised of liquids (approximately 20% of EBITDA excluding G&A for FY15), crude oil logistics (15%), water solutions (27%), retail propane (21%), and refined fuels and renewables (17%). NGL's strategy is to focus growth on crude logistics, water solutions and refined fuels and renewables. NGL also owns the general partner and 19.7% of the LP units of TransMontaigne Partners LP (TransMontaigne).

Leverage: For the latest-12-months (LTM) ending Sept. 30, 2015, NGL's adjusted leverage (defined as debt less $250 million of TransMontaigne's debt to adjusted EBITDA) was 6.0x, which is above Fitch's prior expectations following significant acquisition activity. As new projects come online, Fitch projects leverage to improve. A significant project for NGL is the Grand Mesa pipeline which is to be in service in September 2016, and will generate $160 million of EBITDA a year, which should reduce leverage to a range of 5 - 5.5x by the end of FY17. The partnership's leverage could vary significantly depending on the manner in which NGL funds spending.

Distributable Cash Flow and Distribution Coverage: For the LTM ending Sept. 30, 2015, distributable cash flow was $332 million, up from $272 million generated during fiscal year 2015. NGL's distribution coverage ratio was 1.16x for the LTM ending Sept. 30, 2015 which is a slight decrease from 1.2x for fiscal year 2015.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for NGL include:

--EBITDA growth at a significant pace following acquisitions and substantial growth spending;

--Acquisition activity is expected to continue;

--Distribution growth increases at a measured pace;

--Grand Mesa's EBITDA run rate meets management's expectations of $160 million a year once in service (September 2016).

--Fitch assumes primarily debt funding in FY16 for capital needs, and more balanced equity/debt funding in outer years.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Increase of size and scope of operations such that EBITDA exceeds $500 million while leverage is below 4.5x on a sustained basis;

--Fee-based arrangements accounting for greater than 60% of cash flows.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Reduced liquidity;

--Deterioration of EBITDA;

--Significant increases in capital spending beyond Fitch's expectations or further acquisition activity that have negative consequences for the credit profile (e.g., if not funded with a balance of debt and equity);

--Increased adjusted leverage beyond 5.5x for a sustained period of time.

LIQUIDITY

As of Sept. 30, 2015, NGL had a $2.296 billion secured bank facility comprised of a $1.038 billion working capital facility (which is restricted by a borrowing base) and a $1.258 million expansion facility. The working capital facility had borrowings of $656 million and letters of credit totalling $90 million. The expansion facility had drawn $1.083 billion leaving capacity of $175 million. In October 2015, NGL amended the bank agreement and upsized the acquisition facility by $150 million. NGL's bank agreement extends through 2018.

In addition to the bank agreement having borrowing base restrictions on the working capital revolver, financial covenants do not allow leverage (as defined by the bank agreement) to exceed 4.25x. With permitted acquisitions, it temporarily increases to 4.5x. In addition to the working capital borrowings and letters of credit being excluded from the leverage calculation, NGL gets pro forma EBITDA credit for acquisitions. Pro forma EBITDA credit for material projects or acquisitions is typical for MLP bank agreements. The bank defined leverage ratio was 3.5x as of Sept. 30, 2015.

Fitch expects NGL will continue to generate credit ratios which provide it with sufficient covenant cushion for the bank agreement. NGL does not have any significant debt maturities until 2018 when the bank agreement expires.

Fitch rates the following:

NGL Energy Partners LP

--New Senior Unsecured Notes Due 2020 'BB-'/RR5.

Fitch currently rates the following:

NGL Energy Partners LP

--Long-Term IDR 'BB';

--Senior Unsecured 'BB-'/RR5.

NGL Energy Finance Corp.

--Senior Unsecured 'BB-'/RR5.

The Outlook is Stable.

Date of Relevant Rating Committee: 8 October 2015

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995543

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings
Primary Analyst:
Kathleen Connelly, +1-212-908-0290
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Peter Molica, +1-212-908-0288
Senior Director
or
Committee Chairperson:
Rob Hornick, +1-212-908-0523
Senior Director
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
New York
alyssa.castelli@fitchratings.com


Source: Business Wire (November 30, 2015 - 12:05 PM EST)

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