News Column

Fitch Assigns Enable's $1.5 Billion Notes 'BBB'

May 19, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned Enable Midstream Partners LP's (Enable) proposed senior unsecured notes due 2019, 2024 and 2044 a 'BBB' rating. The notes will rank pari passu with all of Enable's existing and future unsecured indebtedness. The Rating Outlook is Stable.

Proceeds from the notes will be used to repay Enable's $1.05 billion term loan due 2016, and to fund upcoming maturities including Enable Oklahoma Intrastate Transmission's (Enable Transmission) $250 million term loan due 2015 and $200 million notes due 2014. Proceeds may also be used for general partnership purposes.

CenterPoint Energy Resources Corp. (CERC; IDR 'BBB+'/Outlook Stable, a subsidiary of CenterPoint Energy Inc. [CenterPoint; IDR 'BBB'/Outlook Stable]) will guarantee the collection (not payment) of the proposed notes due 2019 and 2024 until May 2016. The guarantee does not refer to the payment of the obligation, just the collection of payment.

A full list of ratings for Enable and Enable Transmission is at the end of this press release.

KEY RATINGS DRIVERS

Enable's ratings are supported by its strategy to operate with low leverage and to generate significant earnings from fee-based assets which provide stable cash flows. The rating is also supported by its size and scope.

The midstream assets contributed to form Enable are from CenterPoint, OGE Energy Corp. (OGE; IDR 'A-'/Outlook Stable) and affiliates of ArcLight Capital Partners, LLC (ArcLight). The assets were geographically complementary and created a good strategic fit.

Midstream assets from CenterPoint are located in Oklahoma and eight other states. Assets from OGE and ArcLight are primarily located in Oklahoma. Enable is an entity with assets in both dry gas and liquids rich basins. On a pro forma basis, approximately 60% of 2013 EBITDA was generated from gathering and processing and the remaining 40% was from transportation and storage.

Ratings Issues: Fitch's credit concerns include commodity and volume exposure and the potential for strategic spending or acquisition activity to accelerate in order to support increased growth for distributions.

Liquidity: As of the first quarter of 2014 (1Q'14), liquidity was approximately $1 billion with $12 million of cash on the balance sheet and nearly $1 billion undrawn on the revolver (after accounting for $433 million of commercial paper borrowings). Enable has a $1.4 billion unsecured revolving credit facility due 2018. The partnership also has a $1.4 billion commercial paper program which is backed by the revolver. Fitch expects Enable to have adequate liquidity to meet its spending needs.

Since the end of 1Q'14, Enable had its IPO which generated $465 million of net proceeds to be used for general corporate purposes, including the funding of the 2014 expansion capex budget.

Financial covenants in the bank agreement include maximum leverage to debt ratio of 5.0x (bank agreement defined EBITDA), expanding temporarily to 5.5x in the event of acquisitions exceeding $50 million.

Near-term debt maturities for Enable include the $200 million of Enable Transmission notes maturing in 2014 and a $250 million Enable Transmission term loan due in 2015. As mentioned, Enable plans to refinance these two debt maturities along with the $1.05 billion term loan due 2016 with the proposed $1.5 billion senior unsecured note offering. After these maturities, there are $363 million of notes payable to affiliates due in 2017.

Leverage: Enable's leverage as of 1Q'14 was 3.2x which remains low for an MLP with a 'BBB' rating. Fitch is raising its year end 2014 leverage target from 3.0x-3.25x to 3.25x-3.5x based on its expectations for borrowings to increase and fund spending needs.

Capital Expenditures: Since Enable is a limited partnership, Fitch expects it to spend significantly to grow EBITDA to support distribution growth. Growth capex in 2013 was $571 million on a pro forma basis and the partnership forecasts growth capex of $533 million and maintenance capex of $199 million for the LTM ending 1Q'15. Fitch believes growth capex may be above management's guidance since Enable may seek to pursue additional opportunities for growth.

Hedging and Contract Mix: Enable does not have any material hedges. To mitigate commodity exposure, the company has a significant amount of gross margins from fee-based contracts and arrangements. In 2013, Enable estimates that approximately 76% of its gross margin was from fee-based contracts (with 39% of gathering and processing from commodity based contracts and 4% of transportation and storage).

PARTNERSHIP DETAILS

In May 2013, Enable was formed as a midstream joint venture between CenterPoint and OGE. CenterPoint contributed its pipelines and field services businesses to Enable and OGE contributed 100% of Enogex (which is now known as Enable Transmission; previously this entity was approximately 80% owned by OGE and 20% owned by ArcLight).

Enable is an MLP which became public in April 2014. CenterPoint and OGE each have a 50% management interest in the general partner. Incentive distribution rights are to be split 40% to CenterPoint and 60% to OGE. As of 1Q'14, limited partnership interests were owned 58% by CenterPoint, 28% by OGE and 13% by ArcLight.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

-- Positive rating action is not expected but could occur if leverage dropped below 2.0x on a sustained basis.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

-- Material changes in management's strategy which creates a less favorable credit profile than Fitch's expectations;

-- Leverage (defined as debt to adjusted EBITDA) in excess of 3.75x on a sustained basis;

-- Significant increases in commodity-based gathering and processing contracts which would increase volatility of cash flows.

RATINGS

Fitch currently rates Enable as follows:

-- Long-term Issuer Default Rating (IDR) 'BBB';

-- Senior unsecured debt 'BBB';

-- Term loan and revolver 'BBB';

-- Expected short-term IDR and commercial paper (CP) rating 'F3'.

Fitch currently rates Enable Oklahoma Intrastate Transmission LLC (Enable Oklahoma, formerly known as Enogex LLC) as follows:

-- IDR 'BBB';

-- Senior unsecured debt 'BBB';

-- Term loan 'BBB'.

Debt outstanding at Enable Transmission is guaranteed by Enable.

The Rating Outlook for both entities is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

-- 'Pipelines, Midstream, and MLP Stats Quarterly - Fourth Quarter 2013', May 2, 2014;

-- '2014 Outlook: Midstream Services', Dec. 10, 2013;

-- 'Credit Considerations for the GP/LP Relationship', Nov. 6, 2013;

-- 'Investor FAQs: Recent Questions on the Pipeline, Midstream, and MLP Sectors' Aug. 5, 2013;

-- 'Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs', April 18, 2013;

-- 'The Top Ten Differences Between MLP and Corporate Issuers', Feb. 19, 2013;

-- 'Corporate Rating Methodology, Including Parent and Subsidiary Linkage', Aug. 5, 2013;

-- 'Rating Pipelines, Midstream and MLPs - Sector Credit Factors', Jan. 13, 2014.

Applicable Criteria and Related Research:

Pipelines, Midstream, and MLP Stats Quarterly - Fourth-Quarter 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747174

2014 Outlook: Midstream Services

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726064

Credit Considerations for the GP/LP Relationship

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721999

Investor FAQs: Recent Questions on the Pipeline, Midstream, and MLP Sectors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715517

The Top Ten Differences Between MLP and Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701812

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Rating Pipelines, Midstream and MLPs - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705496

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=830678

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings, Inc.

Primary Analyst, +1-212-908-0290

Kathleen Connelly

Director

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Peter Molica, +1-212-908-0288

Director

or

Committee Chairperson

Sean Sexton, +1-312-368-3130

Managing Director

or

Media Relations, New York

Brian Bertsch, +1-212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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