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A Look at Magellan’s Debt Position

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MMP’s debt-to-equity ratio

Magellan Midstream Partners’ (MMP) debt-to-equity ratio is 1.9x. In comparison, midstream companies Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), and Williams Partners (WPZ) have debt-to-equity ratios of 1.1x, 1.1x, and 0.8x, respectively. MMP’s ratio has risen marginally over the last two quarters.

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MMP’s net debt-to-EBITDA ratio

The graph above shows MMP’s quarterly debt-to-equity and net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratios over the last five years. MMP’s net debt-to-EBITDA ratio is 3.3x. MLPs usually target debt-to-EBITDA ratios of below 4.5x.

As the graph shows, MMP’s net debt-to-EBITDA has been below 3.5x for the last five years. MMP has borrowed additional funds for capital expansion in 2016, so its debt liability has risen in 2016 compared to 2015.

MMP forms ~10.2% of the Alerian MLP ETF (AMLP). EPD’s net debt-to-EBITDA ratio is 4.4x. ETP and WPZ have net debt-to-EBITDA ratios of 7.2x and 11.5x, respectively.

The 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. A lower ratio is considered better.

Debt issuances

In February 2016, MMP made an underwritten public offering of 5% notes worth $650 million due in 2026. In September 2016 MMP made another debt offering of 4.25% senior notes worth $500 million due in 2046. MMP’s debt liability has risen in 2016 to fund its capital expansion projects.

Next, let’s see what Wall Street analysts recommend for Magellan Midstream ahead of its 3Q16 results.

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