Blackstone, EQT form $3.5 billion gas pipeline venture

(Bloomberg) - Funds managed by Blackstone Inc. agreed to invest $3.5 billion to create a joint venture with EQT Corp., enabling the U.S. natural gas producer to reduce its debt.

The deal will give the private equity giant stakes in gas pipelines serving the Mid-Atlantic, where data centers are forecast to send demand surging in the years ahead. EQT plans to use the proceeds to pay down a term loan and credit facility, as well as repurchase and redeem its bonds, the company said in a statement Monday.

EQT shares rose 2.9% at 9:57 a.m. in New York. Blackstone slipped 1.1%.

Blackstone’s investment comes as utilities are bracing for the largest increase in power use in a generation thanks to artificial intelligence and data centers. They expect a significant portion of that electricity will be generated with natural gas.

Pittsburgh-based EQT’s earnings have declined this year amid a slump in gas prices triggered by an unusually warm winter that crushed demand for the fuel and left storage levels well above average. That caused companies, including EQT, to throttle back production.

EQT net debt, meanwhile, climbed to $13.7 billion as of Sept. 30 after it acquired the owner of the Mountain Valley Pipeline, Equitrans Midstream Corp., for about $5.5 billion in stock in July. The Blackstone deal will enable EQT to cut its net debt to about $9 billion.

Cutting debt may help EQT retain its investment-grade credit rating. Moody’s Corp. currently rates EQT triple B minus, the lowest level above junk territory.

The joint venture will comprise assets including the 300-mile (483-kilometer) Mountain Valley Pipeline that went into service earlier this year, bringing gas from the Marcellus shale formation into Virginia, a crucial market for data centers. The other assets involved in the Blackstone deal also include the Hammerhead Pipeline, which runs from Pennsylvania into West Virginia.

The transaction comes as more private credit managers are pushing to expand beyond financing buyouts and into investment grade credit, infrastructure and asset-based credit. Managers, including Blackstone, have been looking to expand their capabilities to provide more financing directly to companies.

While dealmaking has been busy in the oil-and-gas sector, activity in other industries has been quiet this year. That’s made competition stiff for financing, and private credit managers are increasingly looking to expand their product base. As of the third quarter, Blackstone’s infrastructure and asset-based credit segment had over $80 billion in assets under management and private investment grade credit grew over 40% year over year to more than $90 billion.

RBC Capital Markets LLC and Kirkland & Ellis LLP advised EQT. Citigroup Inc. and Milbank LLC advised Blackstone.