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MarkWest to Offer Notes

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Pipeline operator MarkWest Energy Partners L.P. and its subsidiary MarkWest Energy Finance Corporation have priced an offering of 4.5% senior unsecured notes of $1.0 billion, due in 2023.

MarkWest expects the proceedings to be over on January 10, 2013, subject to customary closing conditions.

Denver, Colorado-based MarkWest Energy Partners LP, a master limited partnership (MLP), is engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids (NGLs), and the gathering and transportation of crude oil.

The partnership reported weak third quarter 2012 results, reflecting lower commodity prices. Its profit per unit – excluding mark-to-market derivative activity and compensation expense – came in at 26 cents, against the Zacks Consensus Estimate of 37 cents. Also, adjusted earnings per unit deteriorated from the year-earlier earnings of 35 cents per unit.

MarkWest ended the third quarter of 2012 with total debt of approximately $2.5 billion, representing a debt-to-capitalization ratio of about 49.1%. With the sale of new notes, debt-to-capitalization ratio will now be 57.3%.

We like MarkWest’s high-quality and diverse portfolio of midstream assets, which generate stable and recurring revenues by way of long-term fee-based contracts. It is one of the largest processors of natural gas in the Northeast and the largest gatherer of natural gas in the prolific Carthage field in East Texas.

However, gathering and processing MLPs, like MarkWest, are more sensitive to commodity prices compared with other MLP subgroups. As a result, collapsing energy prices have adversely affected their cash flow stability.

MarkWest – in partnership with Sunoco Logistics Partners L.P. for the construction of a distribution system to transport ethane produced in the Marcellus Shale Basin to markets along the Gulf Coast – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.

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