Summit Midstream Partners L.P. Rating Lowered To 'B' On Revised Forecast; Outlook Negative

  • S&P Global Ratings revised its commodity price deck lower, which we expect will cause Summit Midstream Partners L.P. (SMLP) to realize lower adjusted EBITDA and volume flow levels than what we had previously forecast. We now forecast SMLP's adjusted leverage to be 5.75x-6.25x over the next 24 months.
  • As a result, we are lowering our issuer credit rating on SMLP to 'B' from 'B+'. The outlook is negative.
  • At the same time, we are lowering our issue-level ratings on Summit Midstream Holdings LLC senior unsecured debt to 'B-', reflecting our recovery expectation of '5' modest (10%-30%; rounded estimate: 25%) recovery in the event of a default. We are also lowering the preferred stock rating to 'CCC' from 'CCC+'.
  • The negative outlook on SMLP reflects our expectation of elevated leverage metrics over the next 24 months. The company could face refinancing challenges, given the approximately $975 million of debt maturities coming due in 2022 (approximately $677 million drawn as of 12/31/19 on unrated revolver plus $300 million under the 2022 notes). Furthermore, while we expect SMLP to remain compliant with its covenants over the next 12 months, we expect continued tightness against covenants over the near term.
NEW YORK (S&P Global Ratings) March 25, 2020—S&P Global Ratings today took the rating actions listed above. The ratings action is underpinned by the downward revision to our commodity price deck, which we expect will cause Summit Midstream Partners L.P.(SMLP) to achieve elevated leverage metrics over the next 24 months, in comparison to our prior forecast. We expect SMLP and its midstream peers will face a more challenging marketplace for the remainder of 2020 and through 2021 as producers reevaluate their development timelines and production forecasts. Despite our expectation that SMLP will begin to position its balance sheet to refinance its upcoming debt maturities, the large debt wall of approximately $975 million due in 2022 highlights elevated refinancing risk, given current capital markets conditions. We expect SMLP to maintain adequate liquidity and support from its sponsor over the next 12 months.
The negative outlook on SMLP reflects our expectation that the partnership will maintain adequate liquidity, but it will now achieve adjusted debt to EBITDA in the 5.75x-6.25x area over the next 24 months.
We could consider lowering the rating if SMLP's assets experience prolonged operational underperformance, or if SMLP sustains adjusted debt to EBITDA at or above 6.5x. We could also consider lowering the rating if SMLP's liquidity deteriorates and the company breaches its covenants, or if we believe SMLP is unable to refinance its upcoming debt maturities within the next 12-18 months.
We could consider revising the outlook to stable if operations improve across SMLP's core and legacy businesses, and if SMLP successfully decreases its debt balance while maintaining adjusted debt to EBITDA below 5.5x. This would also require the company to address its upcoming debt maturities.
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