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Analyzing Magellan Midstream Partners’ Leverage

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DE ratio

Magellan Midstream Partners’ (MMP) DE (debt-to-equity) ratio is ~2x. Its DE ratio rose in 2016 and has been stable for two quarters. Magellan Midstream Partners had an outstanding debt of $4.2 billion at the end of 2Q17—$145 million higher than at the end of 2016.

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Debt-to-EBITDA ratio

The above graph shows Magellan Midstream Partners’ quarterly net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) and DE ratios since the beginning of 2014. Magellan Midstream Partners’ net debt-to-EBITDA ratio is 3.7x—lower than MLPs’ usual target of a ratio below 4.5x. Magellan Midstream Partners’ net debt-to-EBITDA ratio has been on an upward trend in the last three years. However, it was well below 4x during this period.

The debt-to-EBITDA ratios are frequently used to evaluate a company’s ability to repay debt. The ratio is commonly used by credit rating agencies to assign credit ratings to companies. A lower ratio is considered better.

In September 2017, Magellan Midstream Partners issued $500 million of senior notes. It intends to use the proceeds from this offering to repay borrowings outstanding under its commercial paper program and to fund capital expenditures.

In the next part, we’ll see what institutional investors’ activity in Magellan Midstream Partners indicates.

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