Fitch Rates Western Gas Partners' Senior Unsecured Notes 'BBB-'

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB-' rating to Western Gas Partners, LP's (NYSE: WES) $500 million issuance of senior unsecured notes due 2025. The Rating Outlook remains Positive.

The Positive Outlook reflects WES' relationship and credit linkage with its ultimate sponsor, Anadarko Petroleum Corporation (APC, rated 'BBB'/Stable Outlook by Fitch), as well as WES' stable cash flow profile and relatively strong credit profile relative to similarly rated peers.

WES credit quality has historically been tied closely to APC. APC controls WES through its ownership and control of Western Gas Equity Partners, LP (WGP), which owns WES' 2% general partner interest, all of WES' incentive distribution rights, and a 34.7% limited partner (LP) interest. APC also directly holds a 8.25% LP interest in WES. Throughput and cash flow exposure to APC remain significant and are largely under fixed-price and/or fee-based contracts. In addition, APC provides financial support to WES through its willingness to retain commodity price risk at APC through fixed-price arrangements. As a result, WES has 99% of gross margin tied to fixed-fee or fee-based arrangements, which provides for significant earnings and cash flow stability.

KEY RATINGS DRIVERS

Relationship with Anadarko

WES benefits from its strategic and operational relationship with APC. APC has a significant position in North American onshore basins, which should benefit WES through allocation of APC production volumes. WES and APC have swap agreements that mitigate WES' commodity price exposure associated with percent-of-proceeds and keep-whole volumes. APC also has minimum throughput and production dedication arrangements with Wes on specific systems. APC's inventory of midstream assets remains a significant advantage for WES, and enables the company to be selective in capital allocation with regard to acquisitions and organic growth opportunities. In addition, APC retains a significant LP stake in WES, through its ownership and control of WES' general partner, Western Gas Equity Partners (WGP), giving APC a strong economic incentive to effectively steward WES from a growth and cash flow perspective.

Fee-based Contract Structure

WES has approximately 99% of margin tied to fixed-fee or fee-based arrangements. This minimizes margin volatility and provides earnings and cash flow stability. Volumetric risk is a concern as lower throughput can be driven by reduced drilling activity by producers in light of lower commodity prices in the first half of 2015. However, in the near term WES is favorably positioned to the extent that APC continues to focus on developing its domestic resource base and increasing volumes connected to WES systems.

Conservative Financial Policy

LTM debt to Adjusted EBITDA was 3.7x for the period ending March 31, 2015, essentially flat from the period ending Dec. 31, 2014. Fitch notes that the size and timing of dropdowns from sponsors can have a material effect on leverage numbers when using actual EBITDA vs. pro forma numbers. Fitch takes these considerations into account when evaluating credit quality on a forward-looking basis.

Good Liquidity, Visibility on Distribution Increases

The company maintains a $1.2 billion credit facility, which provides adequate liquidity in addition to funding growth in between capital raises. Revolver availability was $567 million as of March 31, 2015, but will increase after the anticipated revolver pay down with proceeds from the $500 million senior notes issuance. Management has publicly announced annual distribution growth targets of 15% over the next few years, which is achievable given expected dropdowns from APC and associated cash flow generation. Distribution coverage has been around good over the past few periods, with management retaining flexibility to fund growth and maintain a consistent pace of distribution increases.

KEY ASSUMPTIONS

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

--WTI oil price that trends up from $50/barrel in 2015 to $60/barrel in 2016 and a long-term price of $75/barrel; and Henry Hub gas that trends up from $3/mcf in 2015 to $3.25/mcf in 2016 and a long-term price of $4.50/mcf consistent with Fitch's published Base Case commodity price deck;

--Moderate revenue growth on existing assets through volume growth;

--Balanced funding of projected growth capital spending with a mix of debt and equity funding

RATING SENSITIVITIES

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

--Debt/Adjusted EBITDA sustained at or below 3.5x, along with continued diversification into third-party throughput volumes.

--A continuation of balanced growth funding;

In previous releases, Fitch has listed the upgrade of APC as a potential positive rating trigger for WES. APC was upgraded to 'BBB' by Fitch on March 16, 2015. Upon the next full WES review, Fitch will reevaluate financial support from APC, credit linkage to APC, and the subsequent effects on WES credit quality.

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

--Negative rating action at APC;

--Material unfavorable changes in sponsor support, contract mix, or in hedging arrangements;

--Debt/Adjusted EBITDA sustained above 5.0x or distribution coverage sustained below 1.0x.

The Rating Outlook is Positive.

Date of Relevant Rating Committee: July 28, 2014

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'Fitch Oil and Gas Assumptions Summary Feb. 2015' (Feb. 11, 2015);

--'Full Cycle Costs Drop for North American E&Ps (Efficiency Gains Show Up in 2014 Numbers)' (March 24, 2015);

--'High-Yield E&P Stress Test (Examining Exposure to the Downturn)' (April 20, 2015);

--'Liquidity Review: Pipelines, Midstream and MLPs' (July 21, 2014);

--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors' (Jan. 13, 2014).

Related Research

Fitch Oil and Gas Assumptions Summary Feb 2015 [862009 - 11-FEB-2015]

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862009

Full Cycle Costs Drop for North American E&Ps (Efficiency Gains Show Up in 2014 Numbers) [863880 - 24-MAR-2015]

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863880

High-Yield E&P Stress Test (Examining Exposure to the Downturn) [864216 - 20-APR-2015]

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864216

Liquidity Review: Pipelines, Midstream and MLPs [752807 - 21-JUL-2014]

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752807

Rating Pipelines, Midstream and MLPs - Sector Credit Factors [722082 - 13-JAN-2014]

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985411

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150527006651/en/

Fitch Ratings
Primary Analyst:
Brad Bell, +1-312-368-3149
Associate Director
Fitch Ratings, Inc.
70 W Madison
Chicago, IL 60602
or
Secondary Analyst:
Peter Molica, +1-212-908-0288
Senior Director
or
Committee Chairperson:
Michael L. Weaver, +1-312-368-3156
Managing Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
[email protected]
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

---

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

---

You May Also Be Interested In

• Ingram Micro Holding Corporation (INGM) Tops Q2 EPS by 4c
• Universal Display (OLED) Reports In-Line Q2 EPS; updates guidance
• Penumbra, Inc. (PEN) Misses Q2 EPS by 28c