Medallion Gathering & Processing LLC Rating Lowered To 'B-' From 'B' On Revised Price Assumptions; Outlook Negative

  • On March 19, 2020, we lowered our commodity price assumptions, which we expect will cause Medallion Gathering & Processing LLC to have lower adjusted EBITDA and volume flow levels than we previously forecast. We anticipate leverage metrics will remain elevated over the next 12 months.
  • S&P Global Ratings lowered its issuer credit rating on Medallion to 'B-' from 'B'.
  • At the same time, we lowered our issue-level rating on the company's term loan to 'B-' from 'B+'. We also revised our recovery rating on the debt to '3' from '2', indicating our expectation for meaningful (50%-70%; rounded estimate: 60%) recovery in the event of default.
  • The negative outlook reflects our expectation that leverage metrics will remain elevated over the next 12 months, with debt-to-EBITDA of 6.5x-7.0x. We also believe that as upstream companies drastically lower capital spending, Permian Basin production and volumes could decline significantly in 2021, which could further weaken Medallion's credit metrics.
TORONTO (S&P Global Ratings) March 25, 2020—S&P Global Ratings today took the rating actions above. The downgrade follows the downward revision of our commodity price deck, which we expect will cause Medallion to have lower adjusted EBITDA and volume flow levels than we previously forecast. We expect the company and its midstream peers will face a more challenging marketplace for the remainder of 2020 and 2021, as producers reevaluate their development timelines and production forecasts. We forecast that Medallion will sustain an adjusted debt-to-EBITDA ratio of 6.5x-7.0x over the next 12 months, although it will have adequate liquidity and the support of its owner, Global Infrastructure Partners (GIP), to maintain stable operations and deleverage over time.
The negative outlook reflects our expectation that Medallion will realize lower throughput volumes than we previously forecast and leverage metrics will remain elevated over the next 12 months, with debt-to-EBITDA in the 6.5x-7.0x range.
We could lower the rating if Medallion's capital structure becomes unsustainable and the company's liquidity deteriorates further. This could occur due to a continued underperformance on the company's throughput volumes or if Medallion sustained higher-than-expected operating expenses and capital expenditures without additional support from its sponsors.
We could revise the outlook to stable if the company maintains a debt-to-EBITDA ratio of less than 6.5x while increasing its throughput volumes and consistently sweeping cash to pay down its outstanding term loan balance.
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