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Shifting Sands Send Midstream Away From Equity As Debt Issues Dominate 2020

Capital offerings in the midstream industry in 2020, through June 15, generally continue the trends observed in 2018 and 2019, when fundamentally lower levels of common equity issuance became the norm.

In 2020 so far, debt offerings are even more dominant, attaining 90% of all capital issued compared with roughly 80% of capital offerings in both 2018 and 2019.

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Midstream equity issuance in 2020 has fallen to a new low, as measured by fraction of total issuance, sinking to 5.5%, or $2 billion, of the $37.1 billion of announced capital funding events.

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Several drivers appear to be responsible for the diminishing use of common equity. Subsided market valuations have made common share issues generally too expensive for most midstream businesses. In addition, the majority of enterprises have shifted away from accessing common equity to provide expansion capital, with most of the midstream industry relying upon cash from operations to pay for capital expenditures.

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Challenged share values are not new for midstream. Equity values have moderated for several years now, as many investors questioned the direction and durability of the industry for a variety of reasons.

The present uncertainties, including coronavirus, oil and gas oversupplies, and regulatory and social pushback on the industry, have not helped matters. Volatility in outlook has not allowed midstream to regain its former footing. Common equity is not expected to return as a principal source of new capital anytime soon.

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Regulatory Research Associates is a group within S&P Global Market Intelligence.

For a full listing of past and pending rate cases, rate case statistics and upcoming events, visit the S&P Global Market Intelligence Energy Research Home Page.

For a complete, searchable listing of RRA's in-depth research and analysis, please go to the S&P Global Market Intelligence Energy Research Library.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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