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S&P downgrades Buckeye Partners due to higher leverage

S&P Global Ratings lowered its ratings on Buckeye Partners LP by two notches following the pipeline company's plan to issue debt to partly fund its acquisition by Australian investment manager IFM Investors Pty Ltd.

The rating agency on Oct. 4 dropped Buckeye's issuer credit and senior unsecured debt ratings to BB from BBB- and assigned a "4" recovery rating to the unsecured debt. S&P also cut the partnership's junior subordinated debt rating to B+ from BB and assigned a "6" recovery rating. S&P downgraded Buckeye as it expects the partnership's leverage to increase to about 6.25x by the end of the year and about 5.5x in 2020.

S&P also removed all Buckeye's ratings from CreditWatch with negative implications, where they were placed following the deal announcement in May. The agency's outlook on Buckeye is now stable in the belief that the partnership will retain adjusted debt to EBITDA below 5.5x through 2020.

"We expect the partnership to use excess cash flows to fund capital expenditures and repay debt leading to leverage of approximately 5x in 2021," S&P credit analyst Jacqueline Banks wrote in a note. S&P may not upgrade the partnership anytime soon, but Banks wrote that the agency could lift the ratings "if Buckeye reduces leverage more rapidly than we anticipated, leading to debt to EBITDA approaching 4.5x."

Buckeye is set to issue a $1.75 billion senior secured term loan B, $500 million of senior secured notes and a $600 million senior secured revolving credit facility, which will be used to partly finance the deal, S&P said in the note. The loan B and notes were assigned a BBB- issue-level rating and "1" recovery rating.

IFM Investors, through its IFM Global Infrastructure Fund, said in May that it is acquiring Buckeye in an all-cash deal worth $10.3 billion in enterprise value and $6.5 billion in equity value. The transaction is slated to close in the fourth quarter.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.