Moody's rates Midcoast, loan B2

Moody's Investors Service said it assigned first-time ratings to Midcoast (East Texas) LLC (Midcoast ETX), including a B2 corporate family rating, a B2-PD probability of default rating, a B2 rating to the $400 million term loan and a Ba2 rating to the $25 million super-senior secured revolver. Midcoast ETX's holding company is Midcoast Holdings (East Texas) LLC, a subsidiary of Midcoast and a guarantor of the debt.

“Midcoast ETX's B2 CFR reflects the company's modest existing scale, limited geographic diversification, and volumetric and commodity price risks, and some customer concentration. The ratings are supported by generally long-term, fee-based contracts and acreage dedications that can lead to relatively stable volumetric throughput and earnings, low capital expenditure needs given already operational assets and an excess cash flow sweep that will require repayment of debt. The normalized EBITDA for Midcoast ETX is expected to be about $100 million with the company's leverage remaining at or below 4x over the next two years. Leverage is likely to further improve over time given the excess cash flow sweep,” Moody’s said in a press release

The term loan proceeds will be used to repay the company’s $100 million term loan, fund cash to the balance sheet, pay transaction expenses, and to make distribution to its ultimate parent's sponsor, ArcLight Capital Partners LLC.

The outlook is stable, reflecting an expectation that Midcoast ETX will keep leverage at or below 4x throughout 2021-22 and adequate liquidity, the agency said.

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