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The sector continues to stabilize, with cash flow declines abating and more speculative-grade companies forecasting positive discretionary cash flow. About 33% of the sector outlook is on negative outlook or CreditWatch negative. Commodity prices have strengthened, which we view as more supportive of midstream infrastructure utilization and credit quality. We also believe production will be slightly better than our previous expectations, although we do not believe this will lead to higher levels of capital spending for midstream companies. Volume declines and counterparty credit quality are key risks to the sector but the uncertainty around the timing and pace of any recovery makes it difficult to predict the severity of impacts on midstream credit profiles. We believe the midstream sector recovery will largely be in sync with an improvement in the upstream sector, which we think will pick up in the second half. We think midstream companies will focus on using excess cash flow to repay existing debt, thus improving credit quality even with a delay in upstream or general economic recovery.

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