Enterprise Products Operating, LLC -- Moody's: Enterprise's acquisition of Navitas has no effect on Baa1 rating or stable outlook

Announcement: Moody's: Enterprise's acquisition of Navitas has no effect on Baa1 rating or stable outlookGlobal Credit Research - 10 Jan 2022New York, January 10, 2022 -- Moody's Investors Service ("Moody's") commented that Enterprise Products Partners L.P.'s announced agreement to acquire Navitas Midstream Partners, LLC (Navitas) has not affected the Baa1 rating or stable outlook of its rated operating subsidiary, Enterprise Products Operating, LLC (Enterprise). The all cash acquisition for $3.25 billion will modestly increase Enterprise's financial leverage but the partnership's credit metrics remain well in line for its rating. The acquisition valuation is reasonable and the strategic rationale sound, extending Enterprise's integrated asset base into the Midland basin with a diverse customer base and large acreage dedications in one of the most cost competitive oil producing basins in the United States.Enterprise agreed to acquire Navitas for $3.25 billion in cash. The transaction is expected to close in the first quarter of 2022. This is about a 9x multiple of Moody's forecasted EBITDA for 2022, but with further growth expected in 2023 and the potential for higher customer volume driven EBITDA given very strong current oil prices. The acquisition adds natural gas and natural gas liquids (NGL) volumes from the Midland basin that can flow into Enterprise's integrated value chain of pipelines, Gulf Coast fractionation, storage and export assets that should enable Enterprise to capture additional revenues and thereby further lower the acquisition multiple being paid. This complements Enterprise's current gathering and processing footprint in the Delaware Basin.Based on Moody's forecasts for both Enterprise and Navitas, Enterprise's Debt/EBITDA pro forma for the acquisition could rise to around 3.75x and 3.6x at the end of 2021 and 2022, respectively, from our current forecasts of 3.5x and 3.4x. This assumes the entire acquisition is debt funded, which is unlikely given Enterprise's sizable cash balance and existing free cash flow generation. These leverage metrics remain well in line of Moody's expectations for Enterprise's Baa1 rating.Navitas engages in natural gas gathering, compression and processing in the Midland basin, with core operations located in the Midland, Martin, Howard, Glasscock, Reagan and Upton Counties of Texas. Navitas had approximately 1,750 miles of natural gas and natural gas liquids pipeline, 755 million cubic feet per day (MMcf/d) of nameplate natural gas processing capacity, and 220,000 HP of field compression capacity as of September 2021. Navitas is currently completing a 200 MMcf/d processing plant that will take total nameplate processing capacity to 955 MMcf/d by the end of the first quarter of 2022.Navitas' gathering and processing systems are backed by over 450,000 dedicated acres from over 60 E&P customers, although over 80% of volumes comes from six major customers. These six core customers have a weighted average contract life of about 10 years, and have more than 5,200 remaining drilling locations providing good long term growth potential even in a lower oil price environment. The contracts have staggered maturities and some contracts have a "fee-based floor" feature that provides downside protection while retaining upside potential.Enterprise Products Operating, LLC is the primary operating subsidiary and issuer of substantially all of Enterprise's debt. It is a wholly-owned subsidiary of Enterprise Products Partners L.P., one of the largest publicly-traded midstream energy master limited partnerships, headquartered in Houston, Texas. Enterprise Products Operating's debt is guaranteed by Enterprise Products Partners.This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Peter Speer Senior Vice President 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. 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