Antero Resources : Fitch Assigns Antero Midstream Partners, LP First-Time 'BBB-' Rating; Outlook Stable

Fitch Ratings-New York-08 January 2018: Fitch Ratings has assigned a Long-Term Issuer Default Rating (IDR), senior unsecured rating, and senior secured rating of 'BBB-' to Antero Midstream Partners, LP (AM). The Rating Outlook is Stable. Roughly $1.1 billion of debt is affected by today's actions. A full list of ratings follows at the end of this release.

AM's ratings reflect AM's strong credit linkage with Antero Resources, Inc. (AR; BBB-/Stable), a 53% owner and AM's primary counterparty. The ratings also reflect the low leverage and conservative financial profile of the partnership supported by fee-based and fixed-priced contracts that limit commodity price exposure and provide some volume protection in the form of minimum volume commitments. Fitch believes the equalization of AM's IDR to its owner and largest counterparty's IDR is appropriate because of the strong strategic and operational ties between the entities coupled with AM's low leverage profile.

On a standalone basis, AM's financial profile would meet minimum size and scale thresholds that Fitch believes are important for an investment-grade rating within the midstream space, but counterparty concentration and its single-basin gathering and processing focus would be of greater concern. AM is publicly guiding 2017 EBITDA to the $520 million-$560 million range, with Fitch expecting 2018 EBITDA above those levels. Generally, Fitch has a $500 million EBITDA threshold for investment-grade midstream energy names that the agency typically targets in terms of size and scale. However, AM's single-basin/single-customer focus provides some concern that AM is subject to outsized event risk should there be an operating or financial issue at AR or a production disruption in the Marcellus/Utica regions. This concern is somewhat mitigated by AM's plans to manage its balance sheet conservatively with lower leverage (in the 2.0x-3.0x range) than most 'BBB-' rated master limited partnership (MLP) peers with a gathering and processing focus.

AM's secured revolver has covenant and security fall-away provisions should AM be upgraded by other rating agencies to investment grade under certain conditions. As such, Fitch has equalized the secured and unsecured ratings, though would expect the secured revolver to have better recovery in a default scenario.

KEY RATING DRIVERS

Long-term Contracts; Consistent Cash flow: AM's operations are supported by long-term contracts with AR. AR has committed to long-term fixed fee agreements to provide gathering and compression services and water services to AR through 2034 and 2035, respectively. AM will provide AR these services at fixed fees, limiting AM's commodity price sensitivity., AR has provided AM with minimum volume commitments for some of these services, which provides AM some volumetric downside protection. Additionally AR has dedicated all of its current and future acreage in West Virginia, Ohio and Pennsylvania to AM with an option to gather, compress and provide water service to any future acreage acquired by AR. AR has agreed to provide AM the right of first offer (ROFO) for any gas processing or NGL fractionation, transportation or marketing services needed by AR. AR has provided a similar ROFO for freshwater delivery services. These fixed fee contracts along with Fitch's expectations for strong production growth at AR and in the Marcellus will result in strong, consistent cash flow and earnings growth for AM over the next several years.

Parental Rating Linkage: AM's ratings reflect linkage to the ratings of AR given the strong strategic and operational ties between the entities. AR has dedicated the rights for gathering and compression, and water delivery and handling, services to AM on a long-term, fixed-fee basis with minimum volume commitments for a significant amount of volumes. Fitch believes that AM's low leverage profile coupled with the strong operational and strategic ties between AR and AM should drive linkage between the entities' IDRs.

Low Leverage; Strong Coverage: AM has historically maintained low leverage metrics and strong interest and distribution coverage relative to midstream peers. Fitch expects continued strong leverage metrics with leverage below 3.0x annually through 2020, even as capital spending grows significantly. Distribution coverage is expected by Fitch at or above 1.1x through 2020 even assuming strong annual distribution growth through that time period. Leverage below 3.0x and distribution coverage above 1.1x is relatively strong compared to 'BBB-' rated midstream energy peers. Median leverage across a select portfolio of Fitch's gathering and processing coverage for 2017 is expected to be roughly 4.2x.

Limited Geographic Diversity/Customer Concentration: AM's business line and geographic diversity are limited with its strong focus on AR's production in the Marcellus. Fitch recognizes that AR's production profile and hedged commodity price exposure position it as a relatively strong exploration and production company whose volumes are expected to increase significantly over the next several years, benefiting AM directly. Nevertheless, Fitch typically views single-basin, single-counterparty midstream service providers like AM as having exposure to outsized event risk should there be an operating issue at AR or any production difficulties in the Marcellus region.

DERIVATION SUMMARY

AM's ratings largely reflect its strong strategic and operating ties to its owner and main counterparty AR. AR controls the activities that most significantly impact AM's economic performance and is expected to provide the majority of AM's revenues and EBITDA, thereby remaining the primary driver behind AM's ability to service its obligations.

AM exhibits low leverage similar to its midstream services peer EQT Midstream Partners, LP (EQM; BBB-/Stable), which is a producer-sponsored midstream MLP with gathering and processing operations in the Appalachian basin. Fitch expects AM to run leverage at below 3.0x on a sustained basis, similar to EQM, which had leverage on a trailing four-quarters basis (as of Sept. 30, 2017) of 1.7x. AM's leverage for that same period as calculated by Fitch was 2.1x. With regard to leverage AM is well positioned relative to other producer-linked MLP peers, Western Gas Partners, LP (WES; BBB-/Stable) and EnLink Midstream Partners, LP (ENLK; BBB-/Stable) which had trailing four quarters leverage of 3.2x and 5.0x, respectively.

Size, scale and asset/business line diversity is more limited at AM relative to peers, WES, ENLK, and EQM, which operate in multiple basins in the case of WES, ENLK or have lower business risk gas-transportation assets in their portfolio like EQM. AM has a single counterparty, AR, making up the vast majority of its revenues and earnings and linking its credit quality very closely to that of its main counterparty and owner. EQM, ENLK and WES all have material, concentrated counterparty exposure to their producer sponsors; in lesser amounts, however, than AM.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
--Volumes consistent with Fitch's AR base case forecasts. Commodity prices consistent with Fitch's published price deck.
--Waste water facility completed December 2017.
--Capital spending of $3.2 billion 2017-2020 on a cumulative basis, inclusive of both growth and maintenance spending.
--Distribution growth consistent with management guidance.

RATING SENSITIVITIES

Future Developments That May, Individually or Collectively, Lead to Positive Rating Action
--Positive rating action is not viewed as likely in the near term, but a positive rating action at AR could lead to a positive rating action at AM provided AM were to operate at leverage and coverage levels consistent with a higher rating. If AR were to be upgraded and AM were to manage leverage to below 2.5x on a sustained basis Fitch would likely upgrade AM.
Future Developments That May, Individually or Collectively, Lead to Negative Rating Action
--A negative rating action at AR.
--Leverage (debt/adjusted EBITDA) at or above 3.5x on a sustained basis, absent any change to basin or customer diversity. Distribution coverage below 1.1x on a sustained basis.
--Material change to contractual arrangement with AR that negatively impacts AM's cash flow or earnings profile.

LIQUIDITY

Liquidity Adequate: AM's liquidity is adequate, supported by relative high distribution coverage and strong availability under its $1.5 billion senior secured revolver. On Oct. 26, 2017, AM amended its credit facility, extending its maturity until October 2022. AM's amended facility provides for lender commitments of $1.5 billion and for a letter of credit sublimit of $150 million. As of Sept. 30, 2017, AM had $427 million outstanding under its prior credit facility leaving availability of roughly $1.1 billion. AM is subject to covenants including maintaining a consolidated interest coverage ratio of at least 2.5x and a consolidated leverage ratio of 5.0x or below. AM was in compliance with its covenants and is expected to remain so through the Fitch forecast period.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following ratings:
Antero Midstream Partners, LP
--Long-Term IDR: 'BBB-';
--Senior secured revolver: 'BBB-';
--Senior unsecured notes: 'BBB-'.

The Rating Outlook is Stable.

Contact:

Primary Analyst
Peter Molica
Senior Director
[phone]
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004

Secondary Analyst
Thomas Brownsword
Senior Director
[phone]

Committee Chairperson
Shalini Mahajan
Managing Director
[phone]

Summary of Financial Statement Adjustments - Fitch has not made material adjustments beyond the items disclosed within the company's financial statements.

Media Relations: Alyssa Castelli, New York, Tel: [phone], Email: [e-mail]; Benjamin Rippey, New York, Tel: [phone], Email: [e-mail].

Additional information is available on www.fitchratings.com

Applicable Criteria
Corporate Rating Criteria (pub. 07 Aug 2017)
Exposure Draft: Corporate Rating Criteria (pub. 14 Dec 2017)
Exposure Draft: Sector Navigators (pub. 21 Dec 2017)
Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 21 Dec 2017)
Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
Copyright © 2018 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: [phone]. Fax: [phone]. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided 'as is' without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001
Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the 'NRSRO'). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. other credit rating subsidiaries are not listed on Form NRSRO (the 'non-NRSROs') and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.