Fitch Upgrades DCP Midstream, LP and DCP Midstream Operating, LP to 'BBB-'; Outlook Stable.
ENPNewswire-May 20, 2022--Fitch Upgrades DCP Midstream, LP and DCP Midstream Operating, LP to 'BBB-'; Outlook Stable
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Release date- 19052022 - Fitch Ratings has upgraded DCP Midstream, LP (DCP) and DCP Midstream Operating, LP (DCP Operating)'s Long-Term Issuer Default Rating (IDR) to 'BBB-' from 'BB+'.
Fitch has also upgraded DCP Operating's senior unsecured ratings to 'BBB-' from 'BB+'/'RR4', and the junior subordinated notes have been upgraded to 'BB+' from 'BB-'/'RR6'. DCP's preferred equity ratings are also upgraded to 'BB' from 'BB-'/'RR6'. The Rating Outlook is Stable.
The upgrade and Stable Outlook reflect DCP's continued expected outperformance spurred by tailwinds from the elevated commodity price environment. The company remains focused on reducing leverage (measured as total debt with equity credit to operating EBITDA) which Fitch forecasts to range between 3.0x-3.3x in 2022 and 2023 before moderating to 3.6x-3.8x in the latter forecast years per the Fitch commodity price deck. DCP has a diverse asset footprint and customer base comprised of mostly investment grade customers. Offsetting these factors are DCP's volumetric risk and higher commodity price risk relative to midstream peers. Management maintains a hedging program to partially mitigate exposure to commodity price drops.
Key Rating Drivers
Scale and Scope of Operations: DCP's ratings reflect the size and scale, and diversity of its asset base. Also incorporated is its position as a large producer of natural gas liquids (NGLs) and processor of natural gas. The partnership has a robust operating presence in most of the key production regions within the U.S., specifically within the DJ Basin and Permian Basin spanning both the Midland and Delaware Basins. DCP has a diverse set of largely investment-grade customers and producers with no material customer concentration.
The size and breadth of DCP's operations allow it to offer its customers end-to-end gathering, processing, storage and transportation solutions, giving it a competitive advantage within the regions where they have significant scale. Excess capacity on several of DCP's systems provide opportunities for volume growth with incremental optimization expenses in higher margin regions to improve utilization.
Volumetric and Commodity Price Exposure: DCP's ratings reflect its exposure to volumetric and commodity price risks associated with the domestic production and demand for natural gas and NGLs. Approximately 50% of DCP's gross margin is provided from the logistics and marketing (L&M) segment, which generally provides fee-based cash flows with exposure to volumetric-risk.
Gathering and processing (G&P, approximately 50% of gross margin) contracts are largely backed by dedicated acreage and are a mix of non-commodity sensitive fee-based contracts and commodity sensitive percent-of-proceeds and...
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