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S&P shifts outlook on Equitrans, EQM to negative on Mountain Valley pipe woes

S&P Global Ratings revised its outlooks on Equitrans Midstream Corp. and EQM Midstream Partners LP to negative from stable on the back of uncertainties around the Mountain Valley Pipeline project while affirming both entities' issuer ratings.

S&P Global Ratings affirmed its BB issuer credit rating on Equitrans and bumped up its rating on Equitrans' $600 million, five-year term loan B to BB+ from BB, citing "improved recovery prospects," according to a March 22 news release. Equitrans used the term loan to buy out its then-general partner EQGP Holdings LP. The rating agency also affirmed its BBB- issuer rating on EQM.

The rating agency said its negative outlook on EQM comes from the increased costs and legal and regulatory hurdles blocking the completion of its 2-Bcf/d Mountain Valley Pipeline natural gas transportation project. S&P Global Ratings sees EQM's planned $1.03 billion bolt-on acquisition of gas gathering systems in the Appalachian Basin as "supportive of credit, [but] does not offset the increased risk at [Mountain Valley Pipeline]."

As Equitrans' master limited partnership, EQM's negative outlook also served as "an important driver" for Equitrans' rating, S&P Global Ratings said, adding that its negative outlook on Equitrans was given to match its outlook on EQM. The rating agency's issuer credit rating on Equitrans, which stands two notches below EQM's BBB- rating, also reflects Equitrans' reliance on upstream distributions from EQM for its fixed costs.

"High capital costs associated with [Mountain Valley Pipeline] and related projects may lead to S&P Global Ratings' adjusted leverage remaining above 5x over the next 12 months," it said in the release. "We expect Equitrans to maintain adequate liquidity, stand-alone adjusted leverage below 2x, and consolidated adjusted leverage (including EQM) of 4x-5x range."

Equitrans recently agreed to exchange and eliminate its incentive distribution rights and revamp its economic general partner interest in EQM after releasing their first earnings results since the restructuring of EQT Corp.

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.