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Investing.com -- Moody’s Ratings has modified the outlook of Martin Midstream Partners L.P. (NASDAQ:MMLP) to stable from its previous negative status. The B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating (PDR), and Caa1 senior secured 2nd lien notes ratings were confirmed. The SGL-3 Speculative Grade Liquidity rating remains the same.
The adjustment in MMLP’s outlook is attributed to the company’s more conservative financial strategies. According to Jake Leiby, Senior Analyst at Moody’s Ratings, MMLP will continue to prioritize debt reduction following the discontinuation of the buyout proposal from Martin Resource Management Corporation.
The shift in MMLP’s outlook reflects the company’s commitment to maintaining prudent financial policies after the termination of the buyout proposal from Martin Resource Management Corporation (MRMC). The proposed MRMC buyout would have necessitated MMLP to distribute enough cash to service the debt that MRMC would have assumed in the transaction. Following the cancellation of the buyout proposal, MMLP has implemented more cautious financial policies that are expected to result in a more stable credit profile.
MMLP’s B3 CFR reflects its asset diversification, long-standing customer relationships, and fee-based EBITDA generation. These strengths are offset by its small scale and concentrated presence on the U.S. Gulf Coast. Despite its regional focus, MMLP is well-positioned to serve large oil refiner customers.
While most of MMLP’s EBITDA is generated by fee-based contracts, reducing direct commodity price exposure, the company still faces volumetric risk. MMLP pays only a nominal distribution to limited partners due to restrictions from its secured notes until leverage is below 3.75x. The company’s debt is expected to decrease in future years, as free cash flow is used to reduce outstanding borrowings under the senior secured first-lien revolving credit facility.
MMLP’s SGL-3 rating is based on the expectation that the company will maintain adequate liquidity until at least mid-2026. As of December 31, 2024, the company had a minimal cash balance but $81 million of available borrowing capacity under its $150 million secured first lien credit facility due February 2027.
The company’s $400 million 11.5% senior secured second-lien notes due February 2028 are rated Caa1, one notch below the CFR, reflecting their second-lien claim to the company’s assets.
The ratings could be upgraded if MMLP shows improved and more consistent operating performance, reduces debt, and maintains adequate liquidity. If the company can keep leverage below 4.0x and interest coverage rising towards 2.5x, it would support a ratings upgrade.
A downgrade of MMLP’s ratings could occur if interest coverage falls below 2.0x, debt increases, and liquidity weakens.
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