Why Phillips 66 Partners’ Leverage Isn’t a Concern
Net debt-to-EBITDA ratio
Phillips 66 Partners’ (PSXP) net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is 2.8x. The net debt-to-EBITDA ratio is often used to assess a company’s ability to repay its debt. It’s commonly used by credit rating agencies to determine a company’s credit rating.
MLPs usually target a ratio of below 4.5x. Phillips 66 Partners had a total outstanding debt of $1.1 billion at the end of 3Q16.
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The above graph shows Phillips 66 Partners’ quarterly net debt-to-EBITDA and debt-to-equity ratios over the last two years.
Phillips 66 Partners, formed in 2013 by Phillips 66 (PSX) to own and operate midstream assets, is in its expansion phase. Funds borrowed for asset acquisitions increased its leverage toward the end of 2015 and at beginning of 2016. However, its ratio fell to conservative levels in 2Q16 and 3Q16.
Equity issuances in 2016
In August 2016, Phillips 66 Partners completed a public offering of 6 million common units for total proceeds of $298.5 million. The proceeds from the issuance were used as considerations to pay for its acquisition of additional interest in the Explorer Pipeline and for PSXP’s contribution to the STACK Pipeline joint venture with Plains All American Pipeline (PAA).
Next, let’s analyze the changes in institutional ownership in Phillips 66 Partners.