Targa Resources Partners LP — Moody’s places Targa’s Ba1 CFR and TRP’s senior notes ratings under review for upgrade
Rating Action: Moody’s places Targa’s Ba1 CFR and TRP’s senior notes ratings under review for upgradeGlobal Credit Research – 04 Feb 2022New York, February 04, 2022 — Moody’s Investors Service (“Moody’s”) placed under review for upgrade the ratings of Targa Resources Corp. (Targa), including its Ba1 Corporate Family Rating (CFR) and Ba3 secured bank facility rating, and Targa Resources Partners LP’s (TRP, wholly owned by Targa) Ba1 senior unsecured notes rating. This follows Targa’s agreement to sell its 25% equity interest in Gulf Coast Express Pipeline (GCX) for $857 million. Targa expects to receive the full proceeds from the sale in the second quarter of 2022. The SGL-2 speculative grade liquidity rating is unchanged. The outlook is changed to ratings under review from stable for both Targa and TRP.RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSTarga has demonstrated remarkable improvement in its credit metrics and in January 2022 completed the buy-in of its development company joint ventures from Stonepeak Lonestar Holdings LLC (ratings withdrawn). The sale of its GCX equity interest, which is being done at a 11x multiple to EBITDA, further improves Targa’s financial flexibility, with one possible use of proceeds being to accelerate redemption of Targa’s preferred shares. Targa has generated positive free cash flow and has focused on strengthening its balance sheet, both of which we expect to continue even in a scenario where the Permian production volumes affecting Targa’s assets remain flat over the medium term. The company’s improved leverage and financial flexibility are key governance considerations incorporated into Targa’s ratings.This rating action reflects the above positive developments, which by strengthening Targa’s financial profile will bolster its capacity to withstand negative credit impacts from carbon transition risks. While financial performance of Targa will continue to be influenced by industry cycles, compared to historical experience Moody’s expects future profitability and cash flow in this sector to be less robust at the cycle peak and worse at the cycle trough because global initiatives to limit adverse impacts of climate change will constrain the use of hydrocarbons and accelerate the shift to less environmentally damaging energy sources.The review will focus on Moody’s view of Targa’s financial policies, planned corporate and capital structure simplification, as well as the nature of the cross-guarantees expected to be in place between Targa and TRP. Targa is likely to be the sole provider of audited financial information as TRP will not be issuing separate audited annual financial information going forward. Targa’s primary assets are essentially its equity ownership interest in TRP, and currently its senior secured credit facility is structurally subordinated to all of TRP’s debt. Having guarantees in both directions for these two entities will help simplify the consolidated capital structure towards a potentially all pari passu debt structure, especially if future credit agreements at Targa have security fallaway provisions conditioned upon achievement of an investment grade rating. Should the review be concluded with Targa’s ratings being upgraded to investment grade, we would withdraw the Ba1 CFR and the SGL-2 rating.On Review for Upgrade:..Issuer: Targa Resources Corp….. Corporate Family Rating, Placed on Review for Upgrade, currently Ba1…. Probability of Default Rating, Placed on Review for Upgrade, currently Ba1-PD…. Senior Secured Bank Credit Facility, Placed on Review for Upgrade, currently Ba3 (LGD6)..Issuer: Targa Resources Partners LP….Senior Unsecured Regular Bond/Debenture, Placed on Review for Upgrade, currently Ba1 (LGD4)Outlook Actions:..Issuer: Targa Resources Corp…..Outlook, Changed To Rating Under Review From Stable..Issuer: Targa Resources Partners LP….Outlook, Changed To Rating Under Review From StableTarga Resources Corp., through its wholly-owned subsidiary Targa Resources Partners LP, operates a portfolio of midstream energy assets that include gathering pipelines, gas processing plants, NGL pipelines, NGL fractionation units, and a marine import/export facility on the Gulf Coast.The principal methodology used in these ratings was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Arvinder Saluja, CFA Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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