Buckeye Partners LP (NYSE: BPL) has signed a definitive agreement to acquire an 80% interest in a company that will be owned jointly with Trafigura AG for $860 million. The company (Buckeye Texas Partners) and its subsidiaries will own and operate a vertically integrated system of midstream assets including a deepwater, high-volume marine terminal located on the Corpus Christi Ship Channel, a condensate splitter and LPG storage complex in Corpus Christi, and three crude oil and condensate gathering facilities in the Eagle Ford shale play.
All of the assets are supported by 7- to 10-year minimum volume throughput, storage and tolling agreements with Trafigura. This transaction is expected to close later in September.
“This transaction allows Buckeye to acquire and further develop a midstream platform in the Gulf Coast with long-term committed revenues and significant potential for further growth,” said Clark C. Smith, chairman and CEO. “We expect this unique integrated system of assets will allow us to capitalize on the rapidly growing production in the Eagle Ford shale. This acquisition complements our portfolio of marine terminal assets in strategic energy hubs and further enhances the logistical solutions we can provide across these key energy markets.”
Commenting on the transaction, Fitch Ratings affirmed the Issuer Default Rating (IDR) and senior unsecured rating for Buckeye Partners at “BBB-,” saying that the Buckeye’s outlook is “stable.”
Fitch said that the “BBB-” rating is supported by the company's size, geographic diversity, and ability to invest in growth opportunities that should drive increases in EBITDA and distributable cash flows. Past acquisitions and strategic capex initiatives have already proven to create growth. Fitch believes that the partnership will increase its geographic diversity with the pending acquisition of assets in the Gulf Coast. Importantly, the new assets are supported by 7- to 10-year minimum volume throughput, storage, and tolling agreements with Trafigura.
Fitch projects that Buckeye will continue to generate credit ratios that will provide it with sufficient covenant cushion for the bank agreement. Buckeye has $275 million of notes due in October. Fitch expects the partnership to refinance the debt in the near term. With access to capital markets and availability on the revolver, Fitch said that it expects Buckeye to have adequate liquidity to meet its spending needs.