CVR Refining (CVRR) Upgraded to 'BB-' by S&P

Standard & Poor's Ratings Services said today it raised its corporate credit and senior unsecured debt ratings on CVR Refining (NYSE: CVRR) to 'BB-' from 'B+'. The outlook is stable. The '3' recovery rating is unchanged. The '3' rating indicates our expectation for meaningful (50% to 70%; lower half of the range) recovery if a payment default occurs.

"The ratings upgrade on CVRR reflects our belief that favorable refining margins will continue due to the partnership's feedstock cost advantage and above-average demand for gasoline, which should keep product pricing strong and financial leverage low over the next 12 to 24 months," said Standard & Poor's credit analyst Mike Llanos.

We view CVRR as somewhat better than its peers in the single 'B' category because of greater scale and its location in the Midwest market, which has historically generated higher refining margins than other regions due to favorable local market dynamics. We expect total debt to EBITDA to be about 1.75x, interest coverage of about 8x, and CVRR to generate positive free cash flow of more than $310 million.

CVRR's rating reflects the "weak" business risk profile and "aggressive" financial profile. The "weak" business risk profile reflects the refining sector's capital-intensive nature, margin volatility, and CVRR's limited asset diversity. CVRR is a 185,000 barrel per day (bpd) independent refiner and marketer of transportation fuels. Compared with industry peers, the Coffeyville refinery in Kansas (115,000 bpd capacity) and the Wynnewood refinery in Oklahoma (70,000 bpd) benefit from low operating costs per barrel and advantageous pricing for crude feedstocks and finished products. The lack of geographic diversity exposes both refineries to similar geographic and pricing economics.

The stable outlook reflects our expectation of adequate liquidity while achieving refining margins of about $14 per barrel, resulting in leverage between 1.5x and 2x.

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