DT Midstream upgraded to BBB- by S&P on improved scale

Investing.com -- DT Midstream Inc. (NYSE:DTM) has been upgraded by S&P Global Ratings to ’BBB-’ from ’BB+’ with a stable outlook, following successful integration of three Midwestern pipelines acquired in December 2024.

The credit rating agency cited DTM’s increased scale and reduced leverage as key factors in the upgrade decision. The company has expanded its EBITDA to a forecast $1.1 billion in 2025, representing almost a 50% increase from $745 million in 2021.

S&P also upgraded DTM’s senior unsecured debt to ’BBB-’ from ’BB+’, in line with the issuer credit rating. The rating agency expects all of DTM’s notes outstanding will be ranked pari passu as security provisions on senior secured notes are falling away.

The integration of the Midwestern pipelines acquired from Oneok Inc. is progressing according to plan, with key employees fully onboarded and financials integrated within 90 days after closing. These assets are expected to contribute an estimated $11 million-$120 million of incremental EBITDA.

DTM has already begun construction on the Midwestern Gas Transmission lateral to serve AES (NYSE:AES) Indiana’s Petersburg Generating Station.

Since its spinoff in 2021, DTM has demonstrated consistent growth through both acquisitions and organic expansion. In 2022, the company acquired a 26.25% stake in Millennium Pipeline from National Grid (LON:NG) plc, strengthening its pipeline segment. The company has also completed a series of expansions at its Blue Union asset and Louisiana Energy Access Project.

The pipeline segment now represents 70% of revenue in 2025, up from 55% in 2021. S&P views this segment as more stable and less vulnerable to fluctuations in gas producer drilling activities.

DTM’s financial discipline has resulted in S&P Global Ratings-adjusted debt to EBITDA of 3.0x-3.2x forecast for 2025 and 2026, a significant improvement from 4.0x in 2021. The company has primarily used operating cash flow to fund growth capital expenditures.

The company’s contract profile has also strengthened, with 95% of revenue coming from Minimum Volume Commitment contracts, demand charges, and flowing gas contracts. The average contract length is approximately seven years, and 80% of counterparties are rated investment-grade, compared to 40% in 2021.

DTM has reduced its reliance on a single customer, with its largest customer, Expand Energy, now representing about 35% of revenues, down from almost 50% in 2021 when Southwestern Energy (NYSE:SWN) was the former customer.

S&P indicated that a negative rating action could occur if adjusted debt leverage approaches 4.0x, while an upgrade would be considered if DTM significantly increases its scale and footprint while maintaining debt leverage below 3.0x.

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