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Moody's upgrades Rockies Express ratings, anticipating lower debt

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Moody's upgrades Rockies Express ratings, anticipating lower debt

Moody's upgraded Rockies Express Pipeline LLC's corporate family rating to Ba1 from Ba2 on the prospect of lower financial leverage and boosts to the company's cash flow, which is now expected to cover debt and capital expenditures.

The upgrade, to one notch below investment-grade status, affects $2.6 billion of rated debt, Moody's said.

The rating agency noted that lowered leverage after the gas pipeline company's $550 million debt security repayment in July will more than offset the risks of decreased cash flows after 2019 due to contract expiration on its east-to-west capacity. Rockies Express Pipeline, or REX, also reached several milestones that are expected to bolster cash flow, including the announcement of the Cheyenne Hub project.

REX operates a 1,700-mile system, with Wyoming and Colorado at one end and Ohio on the other, and many connections to interstate pipelines in between. The new hub facilities would allow it to receive or deliver gas on a firm basis with other pipelines at the Cheyenne hub. Tallgrass Energy Partners LP said it plans to connect the 600-MMcf/d Cheyenne Connector pipeline project to REX's Cheyenne Hub.

Moody's also moved REX's probability-of-default rating to Ba1-PD from Ba2-PD and its unsecured notes rating to Ba1 from Ba2. Its rating outlook is stable. The rating agency expects REX to maintain an adequate liquidity profile, reflecting consistent cash flow generation and continued support from its owners in managing debt maturities. REX's stable outlook reflects Moody's expectation that the pipeline will recontract at least a portion of its uncontracted post-2019 west-to-east capacity and that its customer credit quality will not weaken materially.

Still, REX's rating is constrained by the bulk of its customers being speculative grade, Moody's said. A majority are exploration and production companies vulnerable to commodity prices.

REX's ratings could be considered for an upgrade if its customer credit quality improves and a significant portion of its west-to-east capacity is re-contracted such that the company's debt-to-EBITDA ratio can be sustained below 3.5x.