Gibson Energy ULC announced refinancing, which will decrease annual interest costs, extend the debt maturity profile, and add financing flexibility.


  • We are affirming our 'BB' long-term corporate credit rating on Calgary, Alta.-based midstream energy company Gibson Energy ULC.
  • The affirmation follows the company's announced refinancing, which will decrease annual interest costs, extend the debt maturity profile, and add financing flexibility.
  • We are also affirming our 'BB' issue-level rating on Gibson's senior unsecured debt; the '3' recovery rating on the debt is unchanged.
  • The stable outlook reflects our view that the company will continue to expand the more stable infrastructure business segment through organic growth.


At the same time, S&P Global Ratings affirmed its 'BB' issue-level rating on 
the company's senior unsecured notes. The '3' recovery rating on the notes is 
unchanged, and indicates that lenders can expect meaningful (50% to 70%; 
rounded estimate 65%) recovery if a default occurs.

The affirmation follows Gibson's recent announcement to increase its existing 
5.25% senior unsecured notes maturing in 2024 by C$250 million. The proceeds 
will fully repay the 6.75% US$211 million senior unsecured notes maturing in 
2021. We estimate that the refinancing will decrease annual interest costs by 
about $3.7 million a year and result in total interest savings of about $13 
million, funds the company can use toward reducing leverage or funding capital 
expenditures. In addition, the refinancing extends Gibson's debt maturity 
profile and adds financing flexibility, which we believe is important 
considering the company's growth program to build out its infrastructure 
business segment.

The stable outlook reflects our view that Gibson will continue to expand the 
more stable infrastructure business segments through organic growth, and that 
the proceeds from the U.S. environmental services business will pay down debt 
and finance the capital program. We expect debt-to-EBITDA of 3.25x-3.75x and 
FFO-to-debt of 20%-25% under our base-case forecast.

A downgrade could occur if debt-to-EBITDA deteriorates and stays above 3.5x or 
FFO-to-debt falls consistently below 20%, which could result from increased 
leverage from aggressive financing of growth and acquisition initiatives or a 
decline in cash flows from weaker commodity price-sensitive businesses.

We could upgrade Gibson if the financial risk profile improves to intermediate 
from significant. This could occur if forecast debt-to-EBITDA stays at about 
2.5x and FFO-to-debt above 30%, which could result from continued deleveraging 
either through non-core asset sales or internal cash flows; or increased cash 
flows as the company expands its stable infrastructure business segment.