Fitch Ratings has assigned a BB rating to MarkWest Energy Partners LP's $500-million issuance of senior unsecured notes. The 6.75%, 10-year notes rank pari passu with MarkWest's other senior unsecured debt and are due Nov. 1, 2020. The rating outlook on MarkWest is Stable.
Proceeds from the issuance will be used to fund MarkWest's tender offers for and redemption of its $375 million of senior unsecured notes due Nov. 1, 2014, to pay credit facility borrowings and to provide working capital for general partnership purposes.
The pending issuance would improve MarkWest's financial flexibility and liquidity following the retirement of the 2014 senior notes, according to Fitch. Per a covenant in MarkWest's $705-million credit agreement, the maturity date of the revolver would be accelerated from July 1, 2015 to May 1, 2014 if the 2014 senior notes were not refinanced or paid by that date. The issuance is expected to close Nov. 2, 2010.
The ratings also incorporate MarkWest's growth strategy, which is focused on the Marcellus shale. MarkWest's joint venture with an affiliate of the Energy & Minerals Group, a private equity fund focused on energy investments, has given the company exposure to the significant growth potential in the Marcellus shale while maintaining its financial flexibility, Fitch notes. While there are certain attendant risks to MarkWest's growth strategy, the increasing scale and scope of the company's midstream operations are expected to improve its business risk profile and revenue diversity, the firm adds.
Meanwhile, liquidity is supported by MarkWest's $705-million, five-year secured revolving credit facility, which was put in place July 1. The facility is significantly larger than the $435.6-million revolving credit facility it replaced and includes an accordion feature that provides an uncommitted additional amount of up to $195 million.
Fitch also notes that MarkWest came under some pressure during the economic downturn in early 2009, including significant usage of its prior revolver. The company subsequently took several steps to enhance liquidity and financial flexibility, including expanding the revolver's capacity and entering into its Liberty JV with Energy & Minerals Group. Fitch considers the current revolver's size to be adequate to meet MarkWest's liquidity needs. Long-term debt maturities are manageable, with the pending retirement of the 2014 senior notes pushing back the next long-term debt maturity to July 2016, when $275 million of notes comes due.
MarkWest Energy is midstream MLP focused on energy infrastructure in the southwest, Gulf Coast and Appalachian region including the Marcellus.