Moody’s upgrades DT Midstream’s senior unsecured notes rating, outlook stable

Published 16/05/2025, 22:30
Moody’s upgrades DT Midstream’s senior unsecured notes rating, outlook stable

Investing.com -- Moody’s Ratings has upgraded the senior unsecured notes rating of DT Midstream, Inc. (DT Midstream or DTM) to Baa3 from Ba2 on May 16, 2025. The rating agency withdrew DT Midstream’s Corporate Family Rating (CFR), Probability of Default Rating (PDR), and Speculative Grade Liquidity (SGL) rating, which were previously rated at Ba1 and SGL-2 respectively.

In a concurrent move, Moody’s downgraded DT Midstream’s senior secured revolving credit facility rating and senior secured notes rating to Baa3 from Baa2. The rating outlook for the company has been revised to stable from positive.

The upgrade of DT Midstream’s senior unsecured notes to Baa3 is a recognition of the company’s enhanced scale and earnings stability, as it is expected to continue moderate growth into 2026. The company’s diversified asset base in the premier US natural gas supply regions of Appalachia and Haynesville also positions it to benefit from improving natural gas fundamentals.

DT Midstream’s upgrade reflects its increasing scale with solid leverage metrics, good volume, and cash flow visibility, and an improved counterparty risk profile. The company is also benefitting from increasing natural gas volumes primarily associated with the growth in liquefied natural gas (LNG) export infrastructure.

The company’s secured debt contains a provision that will allow its collateral to fall away under certain conditions, including if the company’s unsecured notes are rated Baa3 or an equivalent rating by two rating agencies. As a result, DT Midstream’s secured debt is expected to become unsecured in the near term following the upgrade of its senior unsecured notes to Baa3. The downgrade of the senior secured revolving credit facility and the senior secured notes to Baa3 aligns their rating with the company’s unsecured notes based on the expectation that the entire capital structure will become senior unsecured.

DT Midstream’s Baa3 ratings reflect the benefit from fee-based revenue with no direct commodity price exposure, and long-term contracts underpinned by pipeline demand charges, minimum volume commitments, and acreage dedications providing volume and cash flow predictability over the next several years. The company has moderate leverage and targets long-term leverage below 4x.

DT Midstream’s strengths are partially offset by its moderate size and scale relative to many of its higher-rated peers. However, the company’s growing scale is supported by roughly 70% of earnings from its pipeline segment, with natural gas gathering comprising the remainder.

DT Midstream’s credit profile has improved due to earnings stability and demand-based contracts, minimum volume commitments, and flowing natural gas or proved developed producing reserves. As economies transition, global initiatives to limit adverse impacts of climate change will constrain the use of hydrocarbons and accelerate the shift to less environmentally damaging energy sources.

DT Midstream should have excellent liquidity to fund its capital budget and dividends through 2026. At March 31, DTM had $83 million of cash and a $1 billion committed revolving credit facility maturing in 2029, with $65 million of revolver borrowings and $16 million in outstanding letters of credit.

DT Midstream’s stable outlook reflects the company’s rising scale and the expectation that the company’s credit metrics will remain solid due to growing revenue and earnings into 2026. Factors that could lead to an upgrade or downgrade of the ratings include changes in the company’s scale, business risk profile, counterparty credit quality, leverage, and distribution coverage.

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