Glass Mountain Pipeline LLC Rating Lowered To 'B-' On Expected Higher Leverage; Outlook Negative

  • We are lowering our issuer credit rating on Glass Mountain Pipeline, LLC to 'B-' from 'B' to reflect higher expected leverage stemming from a reduction in throughput volumes and increased volatility amid depressed energy commodity prices in 2020.
  • At the same time, we are lowering our issue-level rating on the company's $300 million term loan B facility to 'B-' from 'B+' and revising our recovery rating to '3' from '2'. The '3' recovery rating indicates our expectation for meaningful (50%-70%; rounded estimate: 65%) recovery in the event of a payment default.
  • The negative outlook on Glass Mountain reflects its heightened volumetric risk and elevated leverage due to challenging energy market conditions that we expect to persist through 2020.
NEW YORK (S&P Global Ratings) March 27, 2020--S&P Global Ratings today took the rating actions listed above. The downgrade reflects the downward revision of our energy commodity price deck. We now assume West Texas Intermediate (WTI) prices of $25 per barrel (bbl) in 2020 and $45 per bbl in 2021, which we anticipate will result in lower throughput volumes and adjusted EBITDA for Glass Mountain Pipeline, LLC. We think Glass Mountain will face a challenging market environment over the next 12 months as exploration and production companies revise their capital budgets and production volumes. We expect Glass Mountain to have an adjusted debt to EBITDA of above 7.5x in 2020. Positively, we project that the company will have sufficient headroom over its financial covenant and adequate liquidity over the next 12 months, underpinned by its flexible growth capital expenditures (capex) and support from its sponsors.
The negative outlook reflects our expectation of heightened volumetric risk and elevated leverage metrics in 2020 due to the impact of lower commodity prices. We expect an adjusted debt-to-EBITDA ratio of above 7.5x through 2020, resulting from lower expected throughput volumes across the SCOOP and STACK plays.
We could lower our rating on Glass Mountain if the company's capital structure becomes unsustainable and liquidity deterioration threatens its ability to service its debt. This could happen if depressed commodity prices result in continued underperformance of throughput volumes.
We could revise the outlook to stable if Glass Mountain maintains a debt-to-EBITDA ratio of below 6.5x and increases throughput volumes.
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