Research: Rating Action: Moody’s Confirms Magellan’s Baa1 Ratings

New York, June 27, 2022 — Moody’s Investors Service (“Moody’s”) has affirmed the ratings of Magellan Midstream Partners, LP (Magellan), including its Baa1 senior unsecured rating and its Prime- 2. Magellan’s outlook remains stable.

“Baa1’s affirmation reflects Magellan’s seasoned management team, strong earnings performance, and lower business risks,” commented Elena Nadtotchi, senior vice president of Moody’s. “Magellan has a high-revenue, royalty-based business with considerable diversification through its crude and refined product transportation and storage operations.

Statement:

..Issuer: Magellan Midstream Partners, LP

….P-2 Confirmed Senior Unsecured Commercial Paper

….Senior Regular Unsecured Bond/Debenture, Confirmed Baa1

Outlook Actions:

..Issuer: Magellan Midstream Partners, LP

….Outlook remains stable

RATINGS RATIONALE

Magellan’s senior unsecured Baa1 rating reflects its strong credit profile, underpinned by lower business risk than most of its midstream peers, with stable fee-based businesses representing a large majority of the company’s cash flow . Magellan enjoys a strong competitive position, supported by its system’s access to nearly 50% of U.S. refining capacity, as well as its independent service provider model, making it a preferred partner for many chargers. As an MLP, Magellan maintains relatively high distributions, balanced by its commitment to prudent management and financial policies.

The company aims for a payout coverage greater than or equal to 1.2x and leverage (debt/EBITDA) less than 4x. Magellan sold assets and used operating cash flow to fund unit buybacks under its $1.5 billion unit buyback program, while maintaining steadily increasing distributions. It is important for the Baa1 rating that the company rebuilds adequate financial headroom within its leverage objective of 4x debt/EBITDA in the short term.

Magellan’s credit profile is limited by the financial demands imposed by the MLP business model and by its mature legacy asset base. In particular, the company’s refined products business is exposed to a long-term secular decline in US gasoline. While the company’s crude oil-focused growth strategy over the past few years has increased Magellan’s scale and diversification, it has also introduced some volumetric risk.

Magellan’s Prime-2 short-term rating reflects the company’s excellent liquidity, with a fully collateralized commercial paper program, a stable cash flow profile, modest maintenance capital requirements and an asset buyback program. authorized units of $1.5 billion through 2024. However, the MLP structure reduces financial flexibility, forcing the company to disburse most of its available cash. Magellan’s $1 billion commercial paper program is fully secured by a $1 billion committed revolving credit facility, which is available same day up to the full size of the facility. The Revolver expires in May 2024 and had no mintages as of March 31, 2022. We expect the company to have sufficient cushion under its 5x maximum leverage commitment through 2023.

Magellan’s credit facility is used primarily for its modest cash margin requirements associated with its butane blending operations. Magellan has previously used the issuance of commercial paper to partially fund its growth capital needs. The company had $336 million of commercial paper outstanding as of March 31, 2022. The company’s other upcoming debt maturities are $250 million in March 2025 and $650 million in March 2026.

The stable outlook reflects Moody’s expectation that Magellan will continue to maintain a low business risk profile and adequate financial flexibility, while maintaining leverage comfortably below management’s target of 4x debt/EBITDA .

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

A rating upgrade is not likely due to the financial constraints imposed by the MLP business model and, to a lesser extent, its smaller asset base compared to its peers. An upgrade could be supported if the company significantly increases its size with assets with a similar business risk profile while consistently maintaining its financial leverage below 3x.

A downgrade in ratings could be considered if the company’s business risk profile weakens or financial risk increases, including when funding shareholder distributions or unit buybacks with debt, or leverage greater than 4x debt/EBITDA.

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Magellan Midstream Partners, LP is a publicly traded master limited partnership (MLP) that owns a refined petroleum products pipeline system in the Midcontinent Americas, crude oil pipelines and storage facilities in Texas and Oklahoma, as well as marine terminals for refined products and crude oil. in the United States Gulf and East Coasts.

The main methodology used in these ratings is Midstream Energy published in February 2022 and available on https://ratings.moodys.com/api/rmc-documents/379531. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Elena Nadtochi
Senior Vice President
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Steven Wood
MD – Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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