Rating Action: Moody's upgrades Rattler's sr. notes to Ba2, confirms Ba2 CFRGlobal Credit Research - 26 Aug 2022New York, August 26, 2022 -- Moody's Investors Service ("Moody's") upgraded Rattler Midstream LP's (Rattler) senior unsecured notes to Ba2 from Ba3, while concurrently confirming the partnership's Ba2 corporate family rating (CFR) and Ba2-PD probability of default rating (PDR). Moody's also withdrew Rattler's SGL-3 speculative grade liquidity given it is now privately and fully owned by Diamondback Energy, Inc. (Baa3 stable). This concludes the ratings review on Ratter that was initiated on May 16, 2022.On August 24, 2022, Diamondback completed the acquisition of Rattler's publicly held common units representing the limited partnership (LP) interests in Rattler not already owned by Diamondback and its subsidiaries, in exchange for 0.113 Diamondback common shares to each Rattler common unit owner. Rattler has ceased to exist as a public company and will continue its operations a wholly-owned subsidiary of Diamondback. Diamondback repaid and terminated Rattler's revolving credit facility at closing, although Rattler's $500 million 2025 senior unsecured notes remain outstanding.Upgrades:..Issuer: Rattler Midstream LP....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 (LGD4) from Ba3 (LGD5)Confirmations:..Issuer: Rattler Midstream LP.... Corporate Family Rating, Confirmed at Ba2.... Probability of Default Rating, Confirmed at Ba2-PDWithdrawals:..Issuer: Rattler Midstream LP.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-3Outlook Actions:..Issuer: Rattler Midstream LP....Outlook, Changed To Stable From Rating Under ReviewRATINGS RATIONALEThe upgrade of the notes to Ba2 reflects the standalone credit risk profile of Rattler, the full repayment of the Rattler revolver which previously had a priority claim on Rattler's assets over the notes, as well as Rattler's strategic and operational importance to Diamondback. The Rattler notes offer no recourse to Diamondback and represent the only remaining debt of Rattler. These notes have upstream guarantee from material Rattler subsidiaries, but do not have parental guarantee from Diamondback. There is a high likelihood that Diamondback would look to redeem the Rattler notes in the near future given Diamondback's desire to reduce its consolidated debt position. The Rattler notes are already callable, mature in 2025, and have higher coupon rates relative to other tranches of Diamondback notes. If Rattler's rated notes were fully redeemed, Moody's would likely withdraw Rattler's ratings. Moody's expects Rattler to continue producing standalone audited financial statements as long as these notes remain outstanding. Rattler's Ba2 CFR reflect its limited scale, high counterparty and basin concentration, exposure to volume risks, as well as its strategic and operational importance to Diamondback, which has a growing, low-cost and oil-weighted asset base in the highly prolific Permian Basin. Rattler has long term fee-based water handling, crude gathering, and natural gas gathering and compression services contracts with Diamondback, and substantially all of Diamondback's acreage has been dedicated to Rattler for water services. We expect Rattler's operating cash flow to steadily increase and financial leverage to remain below 2x through 2023 as Diamondback and other upstream companies continue to drill and spend at a healthy pace on the back of robust oil and natural gas prices.Rattler will continue to maintain adequate liquidity as a wholly owned subsidiary of Diamondback. While Rattler no longer has its own revolving credit facility, Diamondback will now have full control over Rattler's distributions and capital expenditures and will be able to manage an optimum level of liquidity supportive of Rattler's operations and growth.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRattler's ratings could be upgraded if the company could significantly increase its scale and diversify its customer base while maintaining low leverage. More specifically, we could consider an upgrade if annual EBITDA could be sustained above $500 million while sustaining leverage (debt/EBITDA) below 2x. A downgrade is most likely to occur if the debt/EBITDA ratio rises above 3x and Rattler's earnings decline materially.Rattler Midstream LP is a Midland, Texas based partnership that is wholly owned by Diamondback Energy, Inc. Rattler owns and operates water disposal and sourcing, oil gathering, and natural gas gathering and compression assets in the greater Permian Basin.The principal methodology used in these ratings was Midstream Energy published in February 2022 and available at https://ratings.moodys.com/api/rmc-documents/379531. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor 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 on https://ratings.moodys.com/rating-definitions.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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.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 https://ratings.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 https://ratings.moodys.com.Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Sajjad Alam VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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