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A Look at BWP’s Credit Exposure following Its 1Q16 Earnings

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Boardwalk Pipeline’s stock performance

In this article, we’ll look at Boardwalk Pipeline Partners’ (BWP) counterparty exposure and analysts’ ratings following its 1Q16 earnings results.

Before that, let’s look at the partnership’s market performance. BWP’s shares rose ~1% following its 1Q16 earnings announcement on May 2, 2016, while the Alerian MLP ETF (AMLP), which comprises 24 midstream energy MLPs, fell 0.74%. BWP’s share price rise can be attributed to its strong YoY (year-over-year) earnings growth.

BWP has returned 26.6% since the beginning of 2016. BWP’s peers Spectra Energy Partners (SEP), Cone Midstream Partners (CNNX), and TC Pipelines (TCP) have returned 4.4%, 44.4%, and 10.5%, respectively, in 2016. This could indicate a slight recovery in the midstream sector.

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Boardwalk Pipeline’s credit exposure

A midstream MLP’s counterparty exposure, or credit exposure, is one of the most important parameters to consider in the current price environment.

According to BWP’s 1Q16 earnings call, six of its 50 customers don’t carry investment-grade ratings. These six customers represent ~17% of partnership’s $1 billion in revenue. This is a rise from four of its customers with ~5% of its $1 billion in revenue during 4Q15.

According to BWP’s chief financial officer Jamie Buskill, “The ratings of several of our producer customers, including some of those supporting our growth projects, have recently been downgraded.”

Buskill continued, “The downgrades further restrict liquidity for those customers and could result in non-performance of their contractual obligations including failure to make future payments or for customers supporting our growth projects failure to post required letters of credit or other collateral as construction progresses over the remainder of 2016.”

Analysts’ ratings for Boardwalk Pipeline Partners

At a broader level, 60.0% of analysts rate Boardwalk Pipeline Partners as a “buy,” 30.0% rate it as a “hold,” and the remaining 11.0% rate it as a “sell.”

The median broker target price of $18 for BWP implies a 9.6% return in the next 12 months from its May 2, 2016, closing price of $16.4.

For more post-earnings coverage on midstream companies, check out Market Realist’s Master Limited Partnerships page.

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