Growth in midstream companies’ debt
The total debt for Williams Companies (WMB) and Energy Transfer Equity (ETE) grew by 87% and 32%, respectively, on a YoY (year-over-year) basis in fiscal 3Q15. However, Spectra Energy (SE) saw its debt fall by 0.25%. Also, Kinder Morgan’s (KMI) debt only grew by 13% on a YoY basis in fiscal 3Q15. Kinder Morgan accounts for 2.5% of the Energy Select Sector SPDR Fund (XLE). Additionally, Spectra Energy Partners’ (SEP) debt only grew by 2%.
Weighted average cost of debt
The weighted average cost of debt for these midstream operators stood at 2.7% at the end of fiscal 3Q15. A fall in the demand for natural gas and crude made the rating agencies bearish on these companies’ stocks.
The above graph shows the midstream companies’ debt growth and the weighted average cost of debt. In fiscal 3Q15, the weighted average cost of debt for large-cap downstream and upstream companies were 2.5% and 2.9%, respectively.
Interest coverage ratio
Midstream companies’ average interest coverage ratio in fiscal 3Q15 was 3.6x compared to 4.9x for large-cap upstream companies. Large-cap refiners maintained a ratio around 9x. Midstream companies are more likely to be impacted by the rate hike in this month and the next year compared to their downstream and upstream peers. Investors should know that midstream companies will experience more or less the same impact as upstream companies because of a crude oil supply glut. In fact, diminishing demand for natural gas is already affecting finances.
In the next part, we will talk about the cash flows of theses midstream companies.