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How Does DCP Midstream’s Leverage Situation Look?

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Dec. 4 2020, Updated 10:53 a.m. ET

DCP Midstream’s outstanding debt

In the previous article, we looked at DCP Midstream Partners’ (DPM) cash flow measures. In this article, we’ll analyze DPM’s’ balance sheet position. The partnership ended 2Q16 with a total outstanding debt of $2.4 billion, which is 1.9% lower than its debt in the previous quarter.

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DCP Midstream’s net debt to EBITDA

DCP Midstream’s net-debt-to-EBITDA multiple stood at 3.6x at the end of 2Q16. This is less than the industry standard. MLPs generally target a ratio between 4.0x to 4.5x, considering they mostly distribute their internally generated cash flows as distributions and depend upon external borrowing to fund their acquisitions and capex. Net debt to EBITDA reflects how easily a company can repay its debts from its operational earnings and available cash at hand.

Also, DPM’s leverage is better compared to most of its peers including Summit Midstream Partners (SMLP) and Western Gas Partners (WES).

North Louisiana asset sale

DCP Midstream recently announced the sale of its North Louisiana assets, which it believes are nonstrategic to DPM. The proceeds from the sale will be used to repay debt. According to Wouter van Kempen, DPM’s CEO, “They’re smaller assets but they are parts of the portfolio that are not strategic to us and we will continue to look at certain items like that. In the end, you know what, it does help our balance sheet and I think creating a little bit of dry powder or creating a good balance sheet is good as it pertains to opportunities that may come up here in the future.”

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