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Crestwood Midstream Partners LP -- Moody's assigns B1 rating to Crestwood Midstream Partners' proposed notes

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·14 min read
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Rating Action: Moody's assigns B1 rating to Crestwood Midstream Partners' proposed notes

Global Credit Research - 06 Jan 2021

New York, January 06, 2021 -- Moody's Investors Service (Moody's) assigned a B1 rating to Crestwood Midstream Partners LP's (CMLP) proposed $700 million senior unsecured notes due 2029. CMLP is wholly owned by Crestwood Equity Partners LP (Crestwood). Proceeds from the notes, which are being co-issued by Crestwood Midstream Finance Corp., are expected to fund a tender offer for CMLP's 6.25% Senior Notes due 2023. Crestwood and CMLP's other ratings and Crestwood's negative outlook remain unchanged.

Assignments:

..Issuer: Crestwood Midstream Partners LP

....Senior Unsecured Notes, Assigned B1 (LGD5)

RATINGS RATIONALE

Crestwood's operating subsidiary, Crestwood Midstream Partners LP's senior unsecured notes are rated B1, one notch below Crestwood's Ba3 CFR reflecting their effective subordination to the $1.25 billion senior secured revolving credit facility. Crestwood's preferred units are rated B2, reflecting their subordination to the unsecured notes and secured debt. The preferred units receive 100% equity treatment in our analysis.

Crestwood's Ba3 Corporate Family Rating reflects its basin diversification, good distribution coverage, and a contract profile with a high portion of fixed fee and take-or-pay contracts. The rating also reflects the company's relatively moderate stand-alone leverage. Crestwood is constrained by its relatively small scale, the inherent volumetric risks in its gathering and processing business, customer counterparty risk and the additional debt burden at its parent, Crestwood Holdings LLC, that is serviced by the partnership's distributions.

Crestwood's SGL-3 rating reflects our expectation that the company will have adequate liquidity through early 2022. The company had $446 million available under its $1.25 billion revolving credit facility as of September 30, 2020. The revolver expires in October 2023. We expect Crestwood will be able to fund its basic cash obligations, including capital spending and distributions, through operating cash flow and generate free cash flow in 2022. Financial covenants under the Crestwood credit facility are EBITDA/Interest of at least 2.5x, net Debt/EBITDA of not more than 5.5x, and senior secured leverage ratio of not more than 3.75x. We expect the company to maintain compliance with these covenants through early 2022. Following completion of the tender for the notes due in 2023, Crestwood's next debt maturity is in 2025 when its $500 million senior notes issue comes due. Holdings' term loan matures in March 2023.

The negative outlook reflects uncertainty around the pace of recovery in Crestwood's oil-focused basins and the spending plans of certain of its major counterparties.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be considered for an upgrade if the company is able to sustain debt to EBITDA below 4x, family leverage (including Holdings debt) less than 5x and distribution coverage remains above 1.2x. The ratings could be downgraded if leverage increases, with standalone debt to EBITDA rising above 5x or if there is an increase in Holdings' debt, or distribution coverage falls below 1x.

Crestwood, a master limited partnership (MLP), through its subsidiaries develops, acquires, owns or controls, and operates primarily fee-based assets and operations within the energy midstream sector. Through its ownership in Crestwood, Crestwood Holdings, a private holding company owned primarily by a fund managed by First Reserve Corporation (First Reserve), indirectly controls Crestwood.

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.

REGULATORY DISCLOSURES

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.

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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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

John Thieroff 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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