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MarkWest Closes Offering of Notes

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

The gathering and processing master limited partnership (MLP) plans to use the net proceeds from this offering along with the available cash balance to redeem its outstanding 8.75% senior notes due 2018, a portion of its 6.5% senior notes due 2021 and 6.25% senior notes due 2022. The balance proceeds will be used by the partnership for capital spending and for common working capital and partnership purposes.

MarkWest is currently a Zacks Rank #3 (Hold). We are also maintaining our long-term Neutral recommendation on the unit.

The company owns a high-quality and diverse portfolio of midstream assets that generate stable and recurring revenues based on long-term fee-based contracts. Over the last few years, the partnership has consolidated its position in the midstream business, achieved through a combination of organic efforts and accretive acquisitions.

With its proven track record of supporting producers in the development of shale plays, MarkWest is in a good position to participate in an infrastructure upgrade that will be required for the development of the leasehold assets.

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

MarkWest’s non-fee-based keep-whole and percentage-of-liquids basis contracts for its midstream assets – which make up more than 60% of its net operating margin – expose the partnership to commodity price risk. If these contracts become less profitable, MarkWest’s cash flow stream could be adversely affected, leading to underperformance.

Among MarkWest’s peers, Sunoco Logistics Partners L.P. also retains a Zacks Rank #3 (Hold).

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