Fitch Rates EQT Midstream Partners' Senior Unsecured Note Offering 'BBB-'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB-' rating to EQT Midstream Partners, L.P,'s (EQM) issuance of senior unsecured notes. Proceeds are to be used to reduce revolver borrowings and for general partnership purposes.

KEY RATING DRIVERS

The 'BBB-' rating is supported by EQM's low leverage of 1.3x for the 12 months ending Sept. 30, 2016, and management's strategy to maintain its long-term leverage ratio of 3.5x or lower. EQM also operates with a strong distribution coverage ratio. As of Sept. 30, 2016, it was 1.7x for the trailing 12 months. The 'BBB-' rating also acknowledges EQM's significant customer concentration from EQT Corp. (EQT; IDR 'BBB-'/Stable Outlook). In 2015, EQT accounted for 73% of EQM's total revenues. EQT currently owns 90.1% of EQT GP Holdings, LP (NYSE: EQGP) which owns a 1.8% general partner interest, and a 26.6% limited partnership interest in EQM.

The ratings are further supported by EQM's cash flows which are backed by long-term fee based contracts. In 2015, 82% of revenues were from capacity reservation charges. Furthermore, cash flows should remain stable since the transmission and storage segment has a weighted average contract life of 16 years and the gathering segment has nine years. While growth in EQM has historically been driven by drop-downs from EQT, future growth is expected to come via organic growth projects, particularly the Mountain Valley Pipeline project which is expected to come on line in late 2018. EQM holds a 45.5% stake in the pipeline project. EQM continues to pursue other growth opportunities as well. Projects underway or to be built are backed by long-term contracts ensuring that cash flows will be steady for the next several years after a project is placed into service.

Concerns include EQM's significant customer concentration with EQT given that in 2015, EQT accounted for 73% of revenues. EQT's assets which have been dropped down are located near its own production, thus ensuring that it is the anchor customer for the majority of midstream assets whether transmission, storage or gathering. Given concerns about customer concentration with EQT, concerns for EQM are also tied to the fundamentals of the Marcellus and Utica shale basins and the ability for gas production in those plays to grow against the backdrop of soft natural gas prices.

SIGNIFICANT GROWTH

EQM is currently developing several significant capital projects. The largest project is the Mountain Valley Pipeline which is 45.5% owned by EQM as previously mentioned. The Mountain Valley Pipeline LLC is a joint venture that is constructing a 300-mile FERC-regulated pipeline. It will deliver gas to the mid and south Atlantic. Capacity is to be 2 Bcf per day and is fully subscribed for 20 years; EQT is the anchor shipper. The estimated project cost is in the $3 billion to $3.5 billion range with an expected in-service date of fourth quarter 2018 (4Q18); EQM will fund its 45.5% share of the total project.

STRONG METRICS

For the latest 12 months (LTM) ending Sept. 30, 2016, EQM's adjusted leverage was low at only 1.3x, below leverage of 2.1x at year-end 2014. With EQM's plans for spending in 2016 and beyond, Fitch expects leverage to increase over the next few years yet remain below EQM's long-term leverage target of 3.5x.

Distribution coverage is strong, ending the LTM ending Sept. 30, 2016 at 1.7x. Fitch expects it to remain in the range of 1.4x-1.6x by the end of 2016. Fitch calculates the distribution coverage ratio based on distributions paid (not declared).

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--2016 adjusted EBITDA in the range of $568 million to $573 million, in line with management's guidance;

--2016 distribution growth of 20%;

--EQM's growth is dependent on organic growth projects beyond 2016;

--The Mountain Valley Pipeline remains on schedule for a late 2018 in service date and costs remain between $3.0 billion-$3.5 billion; EQM's stake remains 45.5%;

--EQT remains the primary customer for EQM in the forecast years.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Positive rating action is not viewed as likely in the near term given EQM's significant ties to EQT which is rated 'BBB-'; however, a significant increase in third party volumes for a sustained period of time and an increase in size and scale could prompt positive rating action if coupled with low leverage.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Fitch does not anticipate negative rating actions given EQM's conservative credit profile; however, factors that could prompt action are listed below;

--Negative rating action at EQT given its customer concentration;

--Material changes in EQM's strategy to manage the balance sheet conservatively;

--Leverage (defined as debt to adjusted EBITDA) at 4.5x or greater on a sustained basis in the absence of greater size, as well as greater basin and customer diversity;

--Inability to grow EBITDA as expected given significant spending (via acquisitions and strategic capex);

--Significant increases in arrangements which are not fee based could result in more volatile cash flows and hurt the credit profile.

LIQUIDITY

Liquidity at EQM is adequate. As of Sept. 30, 2016, EQM had $659 million available on its $750 million senior unsecured revolver which extends until 2019. Following the quarter end, EQM used the revolver to fund the $275 million dropdown of assets from EQT. There was no cash on the balance sheet as of Sept. 30, 2016.

EQM's bank agreement restricts leverage (as defined by the bank agreement) from exceeding 5.0x at the end of any quarter. With permitted acquisitions, which are defined as $25 million or greater in any 12-month period, leverage cannot exceed 5.5x for the next three consecutive quarters. Other covenants include restrictions on liens, transactions with affiliates, restricted payments, restrictions on mergers and fundamental changes, and restrictions on asset sales, debt and investments. Like other MLP bank agreements, EQM receives pro forma EBITDA adjustments for material projects for its leverage calculation. EQM remains in compliance with its leverage covenants and is expected to remain so over the next several years.

Fitch currently rates EQM as follows:

EQT Midstream Partners, L.P.

--Long-Term Issuer Default Rating (IDR) 'BBB-';

--Senior unsecured debt 'BBB-'.

The Rating Outlook is Stable.

Date of Relevant Rating Committee: May 11, 2016.

Summary of Financial Statement Adjustments - Fitch typically adjusts EBITDA for Master Limited Partnerships (MLP) like EQM to exclude equity in earnings of unconsolidated affiliates but include cash distributions from unconsolidated affiliates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015)

https://www.fitchratings.com/site/re/869362

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014133

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright (c) 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

View source version on businesswire.com: http://www.businesswire.com/news/home/20161101006168/en/

Fitch Ratings
Primary Analyst
Kathleen Connelly
Director
+1-212-908-0290
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Brad Bell
Associate Director
+1-312-368-3149
or
Committee Chairperson
Peter Molica
Senior Director
+1-212-908-0288
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Baird on Nurix (NRIX) Earnings Amid 7% Drop: '2Q Print Solid as Breadth of Development Expands'
• Morgan Stanley more than doubles Lenovo price target on AI-driven growth
• Delta Air shares slip despite strong outlook, Melius says