(The following statement was released by the ratings agency)
March 19 - Moody’s Investors Service affirmed Enterprise Products Operating
LLC’s (EPO) Baa3 senior unsecured rating and changed its rating outlook to
stable from negative. EPO is the primary operating subsidiary of Enterprise
Products Partners LP (Enterprise or EPD) and issues substantially all of
Enterprise’s debt. Moody’s also affirmed the Ba1 Corporate Family Rating (CFR)
of Enterprise GP Holdings, LP (EPE) and changed its rating outlook to stable
from negative. EPE owns the general partner (GP) and approximately 3% of the
common units of Enterprise. These actions reflect completion of several large
organic expansion projects, declining capital spending, expected cash flow
growth, EPE equity issuance in the third quarter 2007 and improving overall
family leverage. These positive trends are tempered by the company’s higher
leverage currently and a continued active organic growth capex program in
2008.
Since Moody’s changed EPO’s rating outlook to negative in May 2007,
Enterprise has completed several major multi-year infrastructure expansion
projects, including the Independence Hub project in the deepwater Gulf of
Mexico, the Hobbs NGL fractionator in Texas, an expansion of the Mid-America
Pipeline, and the Meeker natural gas processing facility in Colorado. These
projects resulted in higher cash flow in the fourth quarter 2007 and Moody’s
expects 2008 cash flow to be significantly higher than 2007 EBITDA of $1.45
billion.
Enterprise expects to continue investing in previously announced organic
growth projects in 2008, including the Sherman Extension pipeline in north
Texas, an expansion of the Meeker gas plant and a number of smaller projects.
However, total 2008 growth capex is expected to be around $1.5 billion, down
considerably from $2.6 billion of capex and investments in 2007. This high
level of spending adds to Enterprise’s execution risk, as well as leads to
greater capital raising requirements to fund its growth. While not expected at
this point, Moody’s cautions that Enterprise may increase its capital spending
program or develop additional as yet unidentified projects.
Enterprise’s substantial capex in 2007 and relatively low equity issuance
resulted in its Debt/EBITDA (debt adjustments include equity content of hybrid
securities) growing to 4.5x at the end of 2007, up from 4.1x at the end of
2006. Moody’s expects the company’s debt will continue rising during 2008,
reflecting its ongoing capital spending, although leverage should decline as
the year progresses and cash flow grows from recently developed projects. By
the end of 2008, Debt/EBITDA should drop to around 4x, more in line with the
company’s long term targets.
Leverage of the EPCO family of companies (includes Enterprise, EPE, TEPPCO
Partners and EPCO Holdings) has improved since the negative outlook last May.
Debt/EBITDA was 5.4x at the end of 2007, down from 5.9x after EPE acquired its
interest in Energy Transfer Equity. This improvement primarily reflects EPE’s
issuance of approximately $740 million of LP units last July. Leverage should
drop further in 2008 to below 5x resulting from higher cash flow at EPD and
TEPPCO and debt repayment at EPCO Holdings, offset by higher debt levels at EPD
and TEPPCO.
Enterprise Products Operating LLC, headquartered in Houston, Texas, is the
primary operating subsidiary of Enterprise Products Partners L.P. (Enterprise),
a publicly-traded midstream energy master limited partnership. Enterprise’s
operations include natural gas gathering, processing, transportation and
storage; natural gas liquids fractionation, transportation and storage; oil
pipelines; offshore production platform services; and petrochemical services.
(New York Ratings Team)
