Fitch Affirms Western Gas Partners at 'BBB-': Outlook Revised to Positive

Fitch Ratings has affirmed Western Gas Partners' (NYSE:WES) long-term Issuer Default Rating (IDR) and senior unsecured ratings at 'BBB-'. The Rating Outlook has been revised to Positive from Stable.

Approximately $1.9 billion of debt is affected by today's rating action. A full list of rating actions follows at the end of this release.

The Positive Outlook reflects WES's relationship and credit linkage with its ultimate sponsor, Anadarko Petroleum Corporation (APC: rated 'BBB-'/Positive Outlook by Fitch). The Positive Outlook is also reflective of WES's stable cash flow profile and relatively strong credit profile with low leverage relative to similarly rated peers.

WES's credit quality has historically been tied closely to APC. APC controls WES through its ownership and control of Western Gas Equity Partners, LP (WGP) which owns WES's 2% general partner interest, all of WES's incentive distribution rights, and a 41% limited partner (LP) interest. Throughput and cash flow exposure to APC remain significant with APC representing roughly 56% of WES's throughput, largely under fixed-price and/or fee-based contracts. In addition, APC provides financial support to WES in its willingness to retain commodity price risk at APC through fixed-price arrangements. As a result, WES has essentially 100% of gross margin tied to fixed-fee arrangements, which provides for significant earnings and cash flow stability.

KEY RATINGS DRIVERS

Relationship with Anadarko

WES benefits from its strategic and operational relationship with APC. APC has a significant position in North American onshore production, which should benefit WES via allocation of APC volumes from producing areas (WES currently services 69% of APC U.S. onshore natural gas volumes). WES and APC have swap agreements that mitigate WES's commodity price exposure associated with percent-of-proceeds and keep-whole volumes, which accounted for 26% of gross margin in 2013. APC also has minimum throughput and production dedication arrangements with WES on specific systems. APC's large inventory of midstream assets remains a significant advantage for WES, and enables the company to be selective in capital allocation with regard to acquisitions and organic growth opportunities. In addition, APC retains a significant LP stake in WES, through its ownership and control of WES's general partner, Western Gas Equity Partners (WGP), giving APC a strong economic incentive to effectively steward WES from a growth and cash flow perspective.

Fee-based Contract Structure

WES has essentially 100% of margin tied to fixed-fee arrangements. This minimizes margin volatility and provides cash flow and earnings stability. Volumetric risk is a concern as lower throughput can be driven by reduced drilling activity by producers. However, in the near term WES is favorably positioned to the extent that production in its major operating basins continues to rise and APC continues to focus heavily on developing its domestic resource base and increasing volumes.

Strategic Asset Positioning

The company has transitioned from a pure natural gas midstream company to a more balanced platform with increasing exposure to liquids. They have a platform in some of the most economic basins in North America, which are experiencing increased production volumes (DJ Basin, Marcellus, Eagle Ford, Bakken). Throughput from liquids-rich gas basins, including the DJ and Eagle Ford, are expected to account for nearly 68% of 2014 gross margin. Exposure to economic plays helps provide visibility as to stability and growth in throughput volumes.

Conservative Financial Policy

WES's leverage has consistently been lower than similarly rated peers. LTM debt/EBITDA was 3.8x for the period ending March 31, 2014, up from 3.1x at Dec. 31, 2013. Fitch notes that the size and timing of dropdowns from sponsors can have a material effect on leverage numbers when using actual EBITDA vs. pro forma numbers. Fitch takes these considerations into account when evaluating credit quality on a forward-looking basis. Fitch expects debt/EBITDA between 3.5x and 4.0x with distribution coverage of 1.2x in 2014.

Adequate Liquidity; Visibility on Distribution Increases

Management has publicly announced annual distribution growth targets of 15% over the next few years, which is achievable given expected dropdowns from APC and associated cash flow generation. Distribution coverage has been around 1.2x over the past few periods, with management retaining flexibility to fund growth and maintain a consistent pace of distribution increases. The company maintains a $1.2 billion credit facility, which provides adequate liquidity in addition to funding growth in between capital raises. Revolver availability was $1.2 billion as of March 31, 2014. WES is in compliance with its revolver covenant which limits debt/EBITDA to 5.0x (or 5.5x following an acquisitions. WES debt/EBITDA as per it covenant calculation was 3.70x as of March 31, 2014.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Positive rating action at APC, with a continuation of conservative financial policy at WES;

--Debt/EBITDA sustained at 3.0x-3.5x, along with increased diversification into third-party throughput volumes.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Negative rating action at APC;

--Material unfavorable changes in sponsor support, contract mix, or in hedging arrangements;

--Debt/EBITDA on a sustained basis above 5.0x and distribution coverage below 1.0x.

Fitch has affirmed WES's ratings as follows:

Western Gas Partners, LP

--Long-term IDR at 'BBB-';

--Senior unsecured notes at 'BBB-'.

The Rating Outlook is Positive.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Liquidity Review: Pipelines, Midstream and MLPs' (July 2014);

--'North American Exploration and Production Handbook' (July 2014);

--'Pipelines, Midstream, and MLP Stats Quarterly - First Quarter 2014' (June 2014);

--'U.S. Midstream Dashboard' (June 2014);

--'Non-Traditional MLP Assets (Changing Mix, Changing Risk)' (May 2014);

--'MLP Parity Act (Renewables Have Potential to Provide Growth Once Shale Ramps Down)' (March 2014);

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 2014);

--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors' (January 2014).

Applicable Criteria and Related Research:

U.S. Midstream Dashboard

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751223

Pipelines, Midstream and MLP Stats Quarterly -- First-Quarter 2014 (First-Quarter Review)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750842

Rating Pipelines, Midstream and MLPs - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

MLP Parity Act (Renewables Have Potential to Provide Growth Once Shale Ramps Down)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=738615

Non-Traditional MLP Assets (Changing Mix, Changing Risk)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747370

North American Exploration and Production Handbook

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749557

Liquidity Review: Pipelines, Midstream and MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752807

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842494

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