October 21, 2008
Fitch Affirms Express Pipeline LLC/Express Pipeline LP Ratings; Outlook Stable
Fitch Ratings has affirmed the debt ratings of Express Pipeline LLC/Express Pipeline LP (collectively, Express) as follows:
--6.47% senior secured notes due 2013 at 'A-';
--6.09% senior secured guaranteed notes due 2020 at 'A-';
--7.39% subordinated secured notes due 2019 at 'BBB-'.
The Rating Outlook is Stable.
The ratings affirmation reflects expected continuing strong performance in excess of original base case projections. The majority of Express revenues are derived from long-term ship-or-take contracts with primarily strong investment grade shippers. Demand for capacity remains high due to increased reliance on Canadian crude from the United States, and Express is among the lowest priced pipelines serving its markets. Competitive tariff rates are expected to mitigate the impact of any demand reductions due to lower oil prices and newly constructed competing pipelines. However, Fitch would view unfavorably the inability to renew or replace existing long-term shipping contracts.
Through the first half (1H) of 2008, approximately 87% of the throughput capacity on the Express pipeline has been contracted to shippers with a blended credit quality of 'BBB'. The off-take agreements are on a ship-or-pay basis where shippers pay the agreed 'committed price' for contracted pipeline capacity. The tariffs include an 8% surcharge on medium crude, 22% on heavy crude and 27% on extra heavy crude, and approximately 75% of the throughput through the Express system is heavy or extra heavy crude oil. The Platte pipeline portion of the Express system does not have long-term contracts but charges 110%-180% of the committed prices. Throughput on the Platte segment has been stable, reflecting the competitively priced tariffs of the established pipeline compared to tariffs for newly constructed competing pipelines.
In August 2008, Kinder Morgan Energy Partners (rated 'BBB' by Fitch) acquired the equity stake from Knight Inc. (rated 'BB+' by Fitch). Although there were no operational changes, Fitch views the takeover by a stronger credit quality company favorably. There have been no operational issues in 1H 2008 and the project has demonstrated strong and stable financial performance. The debt service coverage ratio (DSCR) on the senior secured debt for 2007 and 1H 2008 was 3.94 times (x) and 3.53x respectively. The DSCR on a consolidated basis, i.e. inclusive of subordinated debt, was 1.95x and 1.79x, respectively for the period 2007 and 1H 2008.
The Express System is an integrated 1,717-mile crude pipeline system that originates at Hardisty, Alberta and ends in Woodriver, Illinois. The Express system is comprised mainly of two segments, Express pipeline and Platte pipeline. Express pipeline (785 miles & 24 inches in diameter) starts in Alberta, Canada and ends in Casper, Wyoming, with an expanded capacity of 280,000 barrels per day (bpd). Platte pipeline (932 miles and 20 inches) starts in Casper, Wyoming and ends in Woodriver, Illinois, and has a capacity of 143,000 bpd.