Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) and senior unsecured rating of
The ratings are supported by Portland' long-term contracts with a diverse and creditworthy group of shippers, providing stable and highly visible cash flow.
The Rating Outlook has been revised to Positive from Stable due to a meaningful reduction in construction completion risk, along with leverage that is expected to be sustained below Fitch's positive sensitivity.
Portland is indirectly owned by
Key Rating Drivers
Final Phase of WXP Expansion: Portland completed phase II (of III) of
Demand Pull Customers: Upon completion of all three phases of the WXP expansion, nearly all of Portland's capacity will be reserved under take-or-pay contracts with high-credit quality shippers. The weighted average remaining contract term at the time of completion, anticipated in
Demand pull customers tend to renew their contracts more often than supply push customers. This holds true at Portland insofar as the current largest customer under its foundational (1999) contracts has renewed its participation in the pipeline with Portland XPress (PXP) contracts. When the second expansion project is officially complete, Portland will have some concentration risk. After the completion of the WXP expansion, the top five shippers will account for approximately 85% of contacted volumes, while the largest customer will make up roughly 18% of expected total revenue.
Stabilizing Leverage: Historically, Portland has had very little debt and maintained leverage below 1.0x. Fitch expects the PXP and WXP expansion projects and the associated capital spending to continue to drive leverage above historical levels. In
Pipeline Expansions Fulfil Important Goals: The Portland XPress and
Parent Subsidiary Rating Linkage: There is parent subsidiary relationship between Portland and
Due to these rating considerations, Fitch rates Portland on a standalone basis with no uplift from its parent. Despite the lack of explicit rating linkages, Fitch views the ownership dynamic as supportive of the company's credit quality. Fitch does not believe this relationship would change if TRP's rating, which has a Negative Outlook, were to change.
Derivation Summary
For most of the midstream sector,
Sabal and Portland both have long-term take-or-pay contracts with high-quality, demand-pull counterparties. Sabal's contracts have a weighted average remaining life of approximately 21 years, and once Portland's contracts for
Throughout the rating horizon, Fitch expects Portland's leverage to be slightly less than 3.0x, which compares favorably to Sabal's forecasted low-to-mid 4x leverage. Portland has recently had greater construction risk than Sabal. Over the past two years, Portland has been progressing two expansion projects. The first project has been completed, and the second should be fully in-service in
Fitch considers the lowered construction risk as WXP nears completion a positive for the rating. Coupled with the long weighted average contract life remaining, strong counterparty credit ratings of mainly demand-pull customers and low relative leverage position, Portland is strongly positioned in the 'BBB+' rating category.
Key Assumptions
No new debt issued and no draws on revolving credit facility;
Capital spending for WXP III in line with management expectations;
Phases III of WXP completed on schedule;
Portland fulfils its obligations in its long-term contracts with shippers, and no shipper defaults on any payments;
Distributions to owners of all excess cash flow after maintenance capital expenditures and interest expense, provided that some cash is intended to be held back for working capital purposes.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch could consider a positive rating action following the successful completion and in-service of all phases of the
Total debt with equity credit/operating EBITDA expected to be below 3.0x for a sustained period of time;
A substantial shift in weighted average shipper credit quality towards the higher end of the rating scale.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Total debt with equity credit/operating EBITDA sustained above 4.0x;
Unexpected material construction-phase problems.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: In April of 2018, Portland entered into a revolving credit agreement for
Portland issued 10-year
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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