The two major credit rating agencies Thursday reacted mostly positively to $500 million in unsecured debt for El Paso Corp.’s pipeline partners unit, affirming its “B” ratings and designating the outlook as “positive.”
In May, El Paso said it would spin off its exploration and production (E&P) business by the end of this year. Once the proposed spin-off is completed, El Paso Corp. would be composed of its Pipeline Group, Midstream Group and its general and limited partner interests in El Paso Pipeline Partners LP (see Daily GPI, May 25).
“Our ‘BB’ long-term corporate credit rating on El Paso Pipeline Partners LP is tied to our rating on El Paso Corp.,” said Standard & Poor’s Ratings Services (S&P) in rating the $500 million of senior unsecured debt for El Paso Pipeline Partners Operating Co. LLC. S&P put the company on its CreditWatch with “positive implications.”
Moody’s Investors Service rated new notes for the pipeline operating company as “Ba1” with an outlook of “positive.” It said the operating company’s ratings will continue to be constrained until El Paso Corp.’s separate ratings move up. The positive outlook, however, “reflects the potential for ratings improvement after the spin-off of EP Energy Corp. and further debt reductions [at the parent corporation],” Moody’s said.
“An upgrade of El Paso could be considered as the company finalizes the structural details of the E&P spin-off and provides stronger visibility to achieving and maintaining a debt to EBITDA [earnings before interest taxes depreciation and amortization] ratio of less than five times.”
If the spin-off is not completed, the ratings outlook could be moved down a notch to “stable” from positive, Moody’s said. A worsening of the debt ratio could also have the same result.
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