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Magellan Midstream Maintains a Conservative Leverage Profile

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MMP’s debt-to-equity ratio

Magellan Midstream Partners’ (MMP) debt-to-equity ratio is ~2x. Whereas it rose in 2016, it has been stable over the last four quarters. Magellan Midstream had outstanding debt of $4.3 billion at the end of 3Q17.

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Recent trends

The above graph shows Magellan Midstream Partners’ quarterly net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) and debt-to-equity ratios since the start of 2014. MMP’s net debt-to-EBITDA ratio has followed an upward trend over the last three years. Additional borrowings to finance expansion capital spending contributed to the increase. However, its ratio, ~4x, still meets MLPs’ usual target of below 4.5x.

Debt-to-EBITDA ratios are commonly used to evaluate a company’s ability to repay debt. They are used by credit rating agencies to assign credit ratings to companies. A lower ratio is considered better. Magellan Midstream has a credit rating of “BBB+” from Standard & Poor’s, and “Baa1” from Moody’s. Notably, Magellan has one of the most conservative leverage profiles among MLPs.

Magellan Midstream issued $500 million in notes in October 2017 to repay a part of its commercial paper borrowings and to fund growth projects. In the next part of this series, we’ll look at what institutional investors’ Magellan Midstream Partners activity indicates.

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