Blackstone Credit & Insurance (BXCI) has formed a joint venture with EQT Corp. to hold stakes in several of the Appalachian producer’s midstream assets, including Mountain Valley Pipeline (MVP), for $3.5B in cash. The deal implies a valuation of ~$8.8B, or 12x EBITDA, according to EQT.
The JV includes non-controlling equity interests in MVP, Hammerhead Pipeline, and the Equitrans pipeline system (see the asset map from EQT’s investor presentation). BXCI will now receive 60% of their cash distributions, capped at a 7.875% return.
EQT was saddled with significant debt as part of the $5.5B Equitrans Midstream (ETRN) acquisition in March. EQT plans to use proceeds from the transaction to pay down its term loan and revolving credit facility and to tender for senior notes. EQT also struck deals earlier this year to sell non-core assets in northeastern Pennsylvania, and the producer expects to exit 2024 with ~$9B of net debt.
The structure of this deal is not surprising to East Daley, given our view that EQT would be reluctant to sell MVP outright. The deal gives EQT a buyout option in 8-12 years, and EQT retains the rights to growth projects associated with the assets, including the MVP Southgate extension and a 500 MMcf/d compression expansion on MVP. We expected EQT would retain a controlling interest in MVP since the producer has contracted for 1.3 Bcf/d of the pipeline’s 2.0 Bcf/d capacity.
EQT still holds several cards to further lower its leverage, based on the ETRN Financial Blueprint. The producer acquired several assets in the Equitrans deal we would consider non-core, including full control of Hornet Midstream and a 60% interest in Eureka Midstream.
EQT could also see upside from the retained midstream expansions. In the ETRN Financial Blueprint, EDA estimates a $68MM EBITDA gain if the compressor expansion moves forward on MVP. – Alex Gafford Tickers: EQT, ETRN.
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