Rating Action: Moody's rates Centurion's term loan B1
Global Credit Research - 18 Aug 2020
New York, August 18, 2020 -- Moody's Investors Service, ("Moody's") assigned a B1 rating to Centurion Pipeline Company LLC's (Centurion) $75 million senior secured term loan. The outlook is stable.
"Centurion is raising additional funding to finance strategic growth projects in 2020-2021, while keeping its cash balances to maintain adequate liquidity," said Elena Nadtotchi, Senior Credit Officer.
..Issuer: Centurion Pipeline Company LLC
....Gtd. Senior Secured Term Loan, Assigned B1 (LGD4)
....LGD Senior Secured Bank Credit Facility, Adjusted to (LGD4) from (LGD3)
The new term loan is rated B1 at the same level as Centurion's corporate family rating and its existing term loan. It ranks pari passu with the existing $350 million senior secured term loan and $100 million senior secured revolving credit facility and benefits from the first-lien claim to substantially all of Centurion's assets.
Centurion's B1 corporate family rating reflects rising financial and liquidity risks in 2020. Moody's expects Centurion's revenues and cash flow to decline significantly, compared to its prior expectations, even as the company continues to benefit from material minimum volume commitments (MVC) provisions, including from Occidental Petroleum Corporation. Centurion has low maintenance investment requirements and has certain flexibility in managing its growth investment commitments. The company will utilize the proceeds from the incremental term loan B-1 to fund the Augustus Pipeline and the investment in the Wink-to-Webster pipeline system, as well as general corporate purposes. These sizable investments combined with a decline in earnings is expected to drive free cash flow generation in 2020 and weaken leverage and liquidity profile.
The stable outlook on all ratings reflects the overall strong starting balance sheet at the end of the second quarter of 2020 and significant support to cash flows from the existing MVC commitments.
The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
Centurion's adequate liquidity position is supported by cash balances and its $100 million senior secured revolving credit facility expiring in 2023, that remained undrawn at the end of June 2020. The proposed upsizing of the revolver, which we do not expect to be drawn, will provide a small boost to liquidity. The new term loan will have the same financial covenants as the existing. Both the senior secured facility and secured term loan are subject to a debt service coverage ratio covenant of at least 1.10x. In addition, the revolving credit facility is subject to a maximum net leverage ratio of 4.75x net debt/EBITDA. We expect the company to be in compliance with these covenants through 2020-21.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Centurion ratings may be downgraded if its liquidity position were to weaken further or if its leverage were to increase with debt/EBITDA exceeding 4x. While not likely in the near term, the ratings may be upgraded if Centurion maintains good liquidity and low leverage with debt/EBITDA around 2x, maintains high quality of counterparty risk exposures and returns to growth in EBITDA amid a general recovery in the industry.
Centurion Pipeline Company LLC (Centurion), is a wholly-owned subsidiary of Lotus Midstream, LLC, a company headquartered in Sugar Land, Texas, that is focused on the development of midstream infrastructure and services necessary to transport crude oil and condensate from the Permian Basin. The company was established at the beginning of 2018 and is backed by EnCap Flatrock Midstream, a venture capital group with a focus on investing in North American midstream assets.
The principal methodology used in these ratings was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Elena Nadtotchi VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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