Approximately $3.0 billion in debt is impacted by today's rating action. The agency’s action removes the Rating Watch Negative that Fitch placed on RGP following the announcement of RGP's intent to acquire PVR Partners LP (PVR) in an unit-for-unit transaction valued at $5.6 billion (including the assumption of $1.8 billion in PVR debt). On Dec. 23, 2013, RGP announced two more acquisitions for $1.6 billion [$1.3 billion for Eagle Rock Midstream (EROC) assets; $290 million for Hoover Energy Partners LP]. RGP will be acquiring EROC's midstream business (primarily gathering systems and acreage dedications) in eastern Texas and the Texas panhandle.
The prior Ratings Watch reflected concerns about increased leverage and uncertainty around PVR's business risk. Fitch now believes RGP's business risk will not change materially and that leverage and coverage metrics should remain within levels that are consistent with RGP's current “BB” IDR rating. Fitch expects RGP's leverage to be high for 2014 (above 5.0x) as it completes these mergers, but improving back to between 4.5x to 5.0x in 2015 and further improving as earnings and cash flow from acquisitions and growth projects start to be fully realized on an annual basis.
Fitch believes that the acquisitions will not negatively impact credit quality or RGP's business risk. Fitch notes that the mergers will provide significant strategic benefits for RGP, including increased size, scale and business line diversity, favorable growth opportunities, and entry into the prolific Marcellus/Utica shale plays. The assets being acquired are complementary to RGP's existing businesses from a geographic perspective and should provide significant organic growth opportunities and easily achievable cost saving synergies.