We note Keyera Corp. (Keyera or the Company) has announced an agreement to acquire the remaining 50% working interest in the KAPS pipeline, resulting in full ownership upon closing (the Acquisition).
The purchase price of $1.215 billion for the Acquisition will be funded by an equity issuance of $600.0 million and the balance through an offering of Senior Unsecured Notes. The Acquisition has no impact on Keyera's credit ratings. While the Acquisition modestly weakens Keyera's key credit metrics in 2026, we expect the Company's key credit metrics to improve in 2027 with incremental cash flows from (1) the full-year contribution from the acquisition of Plains Midstream Canada's (Plains) completed in May 2026, including realized synergies; (2) the Acquisition; and (3) organic growth capital projects expected to be placed in service over the next 12 months.
The KAPS pipeline system, with a gross capacity of 350,000 barrels per day, is a strategic asset for the Company. It transports natural gas liquids (NGLs) from Montney and Duvernay to the Company's NGL processing infrastructure in Fort Saskatchewan, Alberta. We view the Acquisition as being modestly positive for the Company's Business Risk Assessment, as the majority of the volumes on the KAPS pipeline system are transported under take-or-pay contracts with investment-grade counterparties and with a weighted-average tenor of over 10 years. We expect volumes and cash flows on the KAPS system to grow over the next three years as Keyera fills up spare capacity under long-term contracts.
Keyera's cash flow-to-debt ratio for the last 12 months ended March 31, 2026 (13.9%), was weaker relative to year-end 2025 (15.3%) because of the delay in the closing of the Plains acquisition, the debt for which was already raised in 2025. Including the proposed debt issuance for the Acquisition and debt used to fund modest free cash flow (cash flow from operations after capital expenditure (capex) and dividends) deficits, we expect Keyera's cash flow-to-debt ratio for 2026 to be modestly weaker (approximately 14%) relative to our assumptions at the time of the last review in November 2025. However, we expect the Company's key credit metrics to improve materially in 2027 (approximately 20%) and the Company's overall financial risk profile to remain supportive of the current credit ratings. We expect the improvement in credit metrics to be primarily driven by the full-year contribution from the Plains acquisition, which is progressing well, with the Company already achieving approximately $90.0 million in run-rate synergies (June 2025 target: $100.0 million). We also expect Keyera to benefit from an increase in cash flows from its organic capex program, most of which are expected to be placed in service in 2027 and 2028. The Company has hedged approximately 90% and 50% of its frac spread exposure in 2026 and 2027, respectively. The Company has adequate liquidity, with $1.5 billion available under its revolving credit facility at the end of Q1 2026.
Notes:
All figures are in Canadian dollars unless otherwise noted.
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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