Morningstar DBRS Confirms Credit Ratings on Keyera Corp. at BBB and BB (high), Stable Trends
EnergyDBRS Limited (Morningstar DBRS) confirmed Keyera Corp.'s (Keyera or the Company) Issuer Rating and Senior Unsecured Notes credit rating at BBB and its Subordinated Notes credit rating at BB (high), all with Stable trends.
KEY CREDIT RATING CONSIDERATIONS
The credit rating actions factor in Keyera's acquisition (the Acquisition) of Plains Midstream Canada's (Plains) natural gas liquid (NGL) business for an upfront cash payment of $5.15 billion. Keyera intends to finance the Acquisition through the issuance of $1.8 billion in equity (prior to a potential overallotment option) via subscription receipts, with the remaining funding provided by the issuance of debt securities and bank facilities of different tenors.
Plains comprises five distinct segments: (1) Plains Fort Saskatchewan Fractionation Plant (PFS), a strategic fractionation and storage asset with a current NGL fractionation capacity of 35 thousand barrels per day (kbpd); (2) Co-Ed Pipeline, a NGL pipeline comprising a 70 kbpd NGL system and a 40 kpbd C5+ system that supplies Deep Basin volumes into PFS; (3) Empress & Prairie Assets, comprising four straddle plants on the Nova Gas Transmission Limited System with up to 5.7 billion cubic feet per day (Bcf/d) of gross processing/extraction capacity and a fractionation capacity of 26 kbpd; (4) Sarnia NGL Complex, a fractionation unit with up to 75,000 bpd of net capacity (75% ownership) and a storage network with a net capacity of 6.0 million barrels (MMbbls); and (5) Non-Fee-for-Service Fractionation Spread and NGL Marketing business. The weighted-average (WA) contract life of the businesses within Plains is 10.5 years and the counterparty quality is high, with 75% of Plains' cash flows underpinned by investment-grade counterparties. The segmented contribution to Plains' consolidated 2026 realized margin is as follows: PFS (25%), Co-Ed (10%), Empress & Prairie Assets (15%), Sarnia & Great Lakes (10%), Non-Fee-for-Service Fractionation Spread and NGL Marketing (40%).
Morningstar DBRS expects the Acquisition to modestly improve the Company's business risk assessment (BRA) through increased diversification. The Acquisition will add brand new straddle capacity of 5.7 Bcf/d as well as increase Keyera's NGL fractionation capacity by approximately 125% to 347 kpbd, storage capacity by 110% to 44 MMbbls, and NGL pipeline capacity by 42% to 1,955 kbpd. Keyera will access new markets through the Acquisition, focused mainly on the processing, transportation, and marketing of NGLs in the Canadian Prairies and Eastern North America. Morningstar DBRS also notes that Keyera expects near-term annual synergies of $100 million driven by corporate cost savings as well as structural cost efficiencies from supply chain management and rail car leasing and freight cost savings. Keyera's weighted-average (WA) contract life pro forma for the Acquisition is approximately 12 years.
Morningstar DBRS expects the Acquisition to have a negative impact on the Company's financial risk profile because of a material increase in debt. However, Keyera's financial risk profile prior to factoring in the Acquisition was strong for the credit ratings with an adequate buffer to absorb additional debt, as the cash flow-to-debt ratio in Q1 2025 was 26%. Despite this weakening, Keyera's financial risk profile is expected to remain supportive of the current credit ratings with a cash flow-to-debt ratio of approximately 17% in 2026 and 2027, improving to 18% by 2028. The Company's liquidity is adequate, with access to $2 billion in undrawn capacity under its existing credit facility as of March 31, 2025, and sufficient ability to access the equity and debt capital markets.
The operating performance at Keyera's existing assets remained strong in 2024. The Company's consolidated realized margin increased by 6% in 2024 versus 2023, with strong performance from the Liquids Infrastructure division and year-over-year increases in both the Gathering and Processing as well as the Marketing divisions. The Liquids Infrastructure division benefitted from increased contribution from Keyera's condensate system as well as higher contracted storage volumes and fractionation revenues. Gathering and Processing benefitted from higher processing throughput and ancillary revenues while Marketing benefitted from higher butane margins because of increased sales volumes and demand for propane, butane, and condensate.
CREDIT RATING DRIVERS
A positive credit rating action is unlikely without a material improvement in Keyera's business risk profile. Morningstar DBRS could upgrade the credit ratings if the contribution of take-or-pay contracts to overall EBITDA increases, improving the Company's comprehensive business risk assessment (CBRA) while maintaining its current comprehensive financial risk assessment (CFRA). Morningstar DBRS could downgrade the credit ratings if Keyera's lease-adjusted cash flow-to-debt ratio declines below 13% on a sustained basis.
EARNINGS OUTLOOK
Morningstar DBRS expects weaker earnings in 2025 for Keyera's existing assets because of lower earnings from Marketing, reflecting more normalized commodity prices relative to 2024 as well as a six-week outage to conduct maintenance at Alberta EnviroFuels.
FINANCIAL OUTLOOK
Morningstar DBRS expects modestly weaker cash flows in 2025 because of a lower contribution from Marketing, while cash flows are expected to increase materially with the Acquisition in 2026 in addition to higher cash flows from Keyera's organic growth capital investment of between $300 million and $330 million in 2025.
CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBBL
Keyera's CBRA of BBBL reflects the improved diversification from the Acquisition with the addition of new markets and modestly increased diversity of supply, offset by the Company's increased commodity exposure through the acquisition of Plains' Marketing assets. The CBRA also reflects a negative adjustment for price and volume risks from the Marketing division.
Comprehensive Financial Risk Assessment (CFRA): AL
Keyera's CFRA of AL reflects weaker FRA metrics because of the material increase in debt associated with the Acquisition, but remain strong for the current credit rating category. Despite weakening, Keyera's financial risk profile is expected to remain supportive of the current credit rating. The CFRA also reflects a negative adjustment for price and volume risks from the Marketing division.
Intrinsic Assessment (IA): BBB
The IA represents the midpoint of the IA Range and is based on the CBRA and CFRA. The IA also considers the current credit rating trend and peer comparisons, among other factors.
Additional Considerations: None
Keyera's credit ratings include no further negative or positive adjustments because of additional considerations.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) at https://dbrs.morningstar.com/research/454196.
Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/456497
Notes:
All figures are in Canadian dollars unless otherwise noted.
Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Oil & Gas, Oilfield Services, and Pipeline and Midstream Energy Industries (May 6, 2025), https://dbrs.morningstar.com/research/453396
Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.
The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.
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