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S&P upgrades Buckeye Partners outlook as reach expands

S&P Global Ratings revised its outlook on Buckeye Partners LP to stable from negative, citing the partnership's broadening scale and the relatively low cash-flow volatility of its storage and transportation businesses.

The partnership's corporate credit rating and senior unsecured debt rating were affirmed at BBB-, with expected debt to EBITDA of about 4.2x to 4.3x over the next year and distribution coverage of about 1.1x.

Buckeye's pipelines are well-positioned to serve Northeast markets, where demand outlooks are favorable, as well as Chicago-area refineries and Midwestern markets, where the partnership already has a strong foothold, S&P said.

The partnership has expanded its global marine terminal segment over the past few years. In January, Buckeye closed the acquisition of a 50% interest in VTTI BV, broadening the reach of its marine terminal operations into the Eastern and Southern hemispheres.

S&P expects Buckeye's cash flow to increase in 2017 as a result of the VTTI acquisition and the completion of phase 1 of its Michigan/Ohio expansion.

The increase in the partnership's size and geographic diversification are viewed favorably despite seeming risks associated with the moves. S&P said a positive ratings action is not likely over the next year but could be considered if the partnership's size and scale improve significantly or if it adopts a much more conservative financial policy, including debt to EBITDA below 3.5x on a sustained basis.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.