OREANDA-NEWS. Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) and senior unsecured rating for Buckeye Partners, L. P. (Buckeye) at 'BBB-'. The Outlook for the partnership remains Stable.

KEY RATING DRIVERS

Buckeye's 'BBB-' rating for the IDR and senior unsecured debt is based on the partnership's size, geographic diversity, and ability to invest in growth opportunities which should create future increases in EBITDA and distributable cash flows. Past acquisitions and strategic growth capex initiatives have already driven EBITDA growth which has reduced the partnership's leverage (defined as debt to adjusted EBITDA) over the past few years. For the LTM ending March 31, 2016, leverage was 4.3x, down from 4.4x at the end of 2015 and 4.6x at the end of 2014. Buckeye's rating is also supported by its steady cash flows. Buckeye estimates that approximately 95% of its EBITDA for the LTM ending March 31, 2016 came from fee-based activities.

The ratings are also supported by geographically diverse assets primarily located in four regions: the Gulf Coast (following the 2014 acquisition of assets to form a joint venture), New York Harbor, Chicago, and the Caribbean. Other factors include Buckeye's distribution coverage ratio which has historically averaged around 1.0x and Fitch projects it to remain between 1.0x and 1.1x over the next two years. The partnership also benefits from the 2010 acquisition of its general partner. Since that transaction, Buckeye no longer pays incentive distribution rights, which benefits the MLP's overall cost of capital.

The Stable Outlook reflects Fitch's expectations that adjusted EBITDA growth should continue and allow the partnership to maintain leverage in the range of 4.2x - 4.5x through the end of 2017. Additionally, it reflects expectations that Buckeye's cash flows should remain fairly stable.

Concerns include the partnership's acquisitive nature; however, Buckeye has historically demonstrated its ability to fund growth and acquisitions with a combination of debt and equity. It should be noted that Buckeye has not been very acquisitive since late 2014 and equity issuance in 2015 slowed as the partnership faced a higher cost of equity like other MLPs. The distribution coverage ratio is expected to remain in a range of 1.0x to 1.1x which is adequate; however, if the coverage ratio falls below that Fitch would be concerned about how the shortfall would be funded.

Leverage: Buckeye's leverage (defined as debt to adjusted EBITDA) has been improving over the past few years. While debt has been on the rise, EBITDA growth has occurred at a faster clip allowing adjusted leverage to fall to 4.3x, down from 4.4x at the end of 2015 and 4.6x at the end of 2014. Prior to that leverage had been above 5x. For the years ending 2016 and 2017, Fitch forecasts leverage in the range of 4.1x - 4.5x.

Distribution Coverage: Fitch expects Buckeye to generate distributable cash flow sufficient to cover its distributions over the next couple of years. Fitch forecasts the distribution coverage ratio to be in the range of 1.0x to 1.1x. The MLP will increase distributions by only $0.0125/unit each quarter during 2016 to benefit the coverage ratio and balance sheet. It should be noted that Buckeye's distribution increases have been $0.0125/quarter since early 2013. In recent years, Buckeye's coverage ratio has been approximately 1.0x.

KEY ASSUMPTIONS

Fitch's key assumptions within the agency's rating case for the issuer include:

--EBITDA and distributable cash flow continue to increase as new projects come on line;

--Higher distributable cash flow will allow the partnership to increase distributions at a modest pace while maintaining a distribution coverage ratio in the range of 1.0x - 1.1x;

--Growth capex is in the range of $300-350 million in 2016, in line with management's guidance;

--Maintenance capex modestly increases in each progressing year.

RATING SENSITIVITIES

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

--Significant leverage reduction. Should leverage fall below 4.0x over a sustained period of time, Fitch may take positive rating action.

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

--Reduced liquidity;

--Inability to meet growth expectations associated with expansion projects given the substantial investments in prior acquisitions;

--Significant increases in capex or acquisitions not funded in a balanced way;

--Increased adjusted leverage beyond 5.0x for a sustained period of time and distribution coverage below 1.0x.

LIQUIDITY

As of March 31, 2016, the partnership had $5.7 million of cash on the balance sheet. In addition, it had $1.0 billion of additional borrowing capacity on its $1.5 billion unsecured revolver due 2020. The nearest debt maturity is 2017 when $125 million becomes due.

Buckeye has been a frequent issuer of equity through its at-the-market (ATM) program. During 1Q16, it raised $38 million of equity through the ATM program. In 2015, $162 million was raised. On March 9, 2016, BPL filed for the issuance of up to $500 million of common units to be issued under its ATM program.

Borrowers on the revolver are Buckeye Partners, L. P. (BPL), and its indirect wholly-owned subsidiaries Buckeye Energy Services LLC (BES), Buckeye Caribbean Terminals LLC (BCT), and Buckeye West Indies Holdings LP (BWIH). BES, BCT and BWIH are collectively referred to as Buckeye Merchant Services Companies (BMSC). BMSC can borrow up to $500 million on the $1.5 billion revolver for letters of credit and swingline loans. In aggregate for all four borrowers, letters of credit cannot exceed $500 million and swing line loans cannot exceed $150 million.

The bank definition of leverage is adjusted for the covenant calculations. For the bank definition of debt, there are adjustments. The debt balance is reduced by borrowings of BMSC subject to certain limitations. Like other MLP bank definitions for EBITDA, it is adjusted for acquisitions and material projects.

At the end of any quarter, bank defined leverage cannot exceed 5.0x. If in any quarter, there has been an acquisition of $50 million or more, or if acquisitions have been $100 million or more in the prior twelve months, then leverage cannot exceed 5.5x for three consecutive quarters.

The credit agreement states BMSC shall not be held jointly and severally liable for any obligations of Buckeye for the credit agreement or other debt.

Fitch affirms the following:

Buckeye Partners, L. P.

--Long-Term IDR at 'BBB-';

--Senior unsecured debt at 'BBB-'.

The Rating Outlook is Stable.