Navitas Midstream Midland Basin 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 Navitas Midstream Midland Basin 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.
  • On March 24, 2020, S&P Global Ratings lowered its issuer credit rating on Navitas to 'B-' from 'B'.
  • At the same time, we lowered our issue-level rating to 'B-' from 'B+'. We also revised our recovery rating on the loans to '3' from '2', indicating our expectation of meaningful (50%-70%; rounded estimate: 60%) recovery in the event of a default.
  • The negative outlook reflects our expectation that leverage metrics will remain elevated over the next 12 months, with debt-to-EBITDA in the 6.5x-7.0x range. We also believe that as upstream companies drastically lower capital spending, production and volumes in the Permian Basin could decline in 2021, which could further weaken Navitas' credit metrics.
TORONTO (S&P Global Ratings) March 24, 2020--S&P Global Ratings today took the rating actions listed above. The downgrade follows the downward revision of our commodity price deck, which we expect will cause Navitas to have lower adjusted EBITDA and volume flow levels than we previously forecast. We expect that 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 Navitas will sustain an adjusted debt-to-EBITDA ratio in the 6.5x-7.0x range over the next 12 months, although it will have adequate liquidity and the support of its sponsor, Warburg Pincus LLC, to maintain stable operations and deleverage over time.
The negative outlook reflects our expectation that Navitas 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 also believe that as upstream companies drastically lower capital spending, production and volumes could decline in 2021 in the Permian Basin, which could further weaken Navitas' credit metrics.
We could lower the rating if the company's capital structure becomes unsustainable and if Navitas' liquidity deteriorates further. This could occur due to a continued underperformance on the company's throughput volumes, further operational challenges, or if Navitas sustained higher-than-expected operating expenses and capital expenditures without additional support from its sponsor.
We could revise the outlook to stable if the company maintains debt-to-EBITDA 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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