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

S&P Global Ratings has upgraded DT Midstream (DTM) to 'BBB-' from 'BB+' with a stable outlook, citing the company's increased scale and significantly reduced leverage following the successful integration of Midwestern pipeline acquisitions. The upgrade to investment grade reflects DTM's improved financial profile, with EBITDA forecast to reach $1.1 billion in 2025 (nearly 50% increase from 2021) and adjusted debt-to-EBITDA projected at 3.0x-3.2x for 2025/2026 (down from 4.0x in 2021). This move validates DTM's strategic growth and financial discipline, enhancing its credit quality and market standing through a strengthened contract profile, with 95% of revenue from minimum volume commitments and 80% from investment-grade counterparties.

Analysis

DT Midstream Inc. has achieved a significant milestone with S&P Global Ratings upgrading its credit rating to investment grade 'BBB-' from 'BB+', supported by a stable outlook. This upgrade is a direct result of the company's successful post-spinoff strategy, characterized by both acquisitive and organic growth, alongside rigorous financial discipline. The integration of Midwestern pipelines has materially increased the company's scale, with EBITDA forecast to reach $1.1 billion in 2025, a nearly 50% increase from $745 million in 2021. Concurrently, DTM has substantially improved its financial profile, with S&P-adjusted debt-to-EBITDA projected to fall to a conservative 3.0x-3.2x range for 2025-2026, down from 4.0x in 2021. The company's risk profile has also been enhanced through a strategic shift towards more stable revenue sources; the pipeline segment now constitutes 70% of revenue, and 95% of total revenue is secured by minimum volume commitments or similar long-term contracts. Furthermore, counterparty risk has been mitigated, with 80% of customers now rated investment-grade, and customer concentration has been reduced, with the largest client accounting for 35% of revenue versus nearly 50% in 2021.

Key Decisions for Investors

• For credit investors, the upgrade to investment grade makes DTM's debt eligible for a wider pool of institutional capital, which should drive bond price appreciation and spread compression; the 'BBB-' rating with a stable outlook presents a compelling profile in the current market.
• For equity investors, the investment-grade rating validates management's strategy, de-risks the balance sheet, and should lower the company's cost of capital, strengthening the bull case based on visible EBITDA growth and a more predictable, high-quality revenue stream.
• Investors should monitor DTM's ability to maintain leverage below 3.2x while integrating new assets, as sustained performance below 3.0x could lead to a further positive rating action, while a reversion towards 4.0x would signal a reversal of recent credit improvements.