Fitch Affirms Sunoco Logistics Ratings at 'BBB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the ratings on Sunoco Logistics Partners L.P. and its operating partnership, Sunoco Logistics Partners Operations L.P. (both entities collectively referred to as Sunoco Logistics) as follows:

Sunoco Logistics Partners L.P.

--Long-term Issuer Default Rating (IDR) at 'BBB'.

Sunoco Logistics Partners Operations L.P.

--Long-term IDR at 'BBB;

--Senior unsecured debt at 'BBB';

--Senior unsecured bank facilities at 'BBB';

--Short-term IDR at 'F2'.

Debt issued by Sunoco Logistics Partners Operations L.P. is guaranteed by Sunoco Logistics Partners L.P. The rating Outlook for both entities is Stable. Approximately $4.5 billion in debt is affected by today's rating action.

KEY RATING DRIVERS

Sunoco Logistics' rating is supported by the following strengths:

--Large diversified asset base that serves high-demand markets;

--Stable, fee-based operations that account for a majority of the partnership's EBITDA;

--Growth projects which are planned and in development that will provide Sunoco Logistics with additional long-term fee-based cash flows;

--Supportive financial credit metrics including a strong distribution coverage ratio which indicate a less aggressive capital structure relative to its peers with similar ratings.

The ratings also factor in the following concerns:

--Expectations for a temporary increase in leverage in 2015 and 2016 as significant spending pressures credit metrics;

-Volatility and working capital needs associated with market-related operations.

Diversified Asset Base: Sunoco Logistics benefits from a mix of fee-based assets consisting of crude oil pipelines, refined product pipelines, and refined product and crude oil terminal facilities. Sunoco's 2014 adjusted EBITDA was $971 million and comprised: 39% crude oil pipelines, 17% crude oil acquisition and marketing, 36% terminal facilities, and 8% from refined products pipelines.

The crude oil pipelines are located mostly in Oklahoma and Texas, and have 5,300 miles of trunk pipelines and 500 miles of crude oil gathering lines which supply the trunk pipelines. This segment should see significant growth going forward given the number of projects underway. The crude oil acquisition and marketing business gathers, purchases, markets and sells crude primarily in the mid-continent.

The terminals facilities have oil and refined products storage capacity of 48 million barrels including 25 million barrels of storage at Nederland, TX, 3 million at Marcus Hook, PA (refined products and natural gas liquids terminal), 39 refined product terminals in the northeast, midwest and southwest. It also has several refinery terminals in the northeast.

The refined products pipelines have 2,400 miles of refined products pipelines and joint venture interest in four such pipelines. This segment should also see substantial growth in the future due to natural gas liquids (NGL) pipeline projects that are currently being developed including Sunoco Logistics' Mariner projects.

The crude oil acquisition and marketing segment purchases crude from the wellhead and other locations and then sells it at various locations. Delivery occurs through its fleet of over 300 trucks, through its own pipelines and via third party pipelines.

Leverage: At March 31, 2015, leverage (as defined by Fitch as debt-to-adjusted EBITDA) was 4.8x, up from 4.6x at the end of 2014 and sharply above leverage of 3.1x at the end of 2013. Fitch expects to see leverage decrease over the balance of 2015 as SXL increases EBITDA and uses both debt and equity to fund growth projects. If leverage remains over 4.5x for a sustained period of time beyond then, Fitch may take negative rating action.

Adequate Liquidity: At the end of the first quarter 2015 (1Q15), Sunoco Logistics had $2.2 billion of liquidity which consisted of $54 million of cash and nearly $2.2 billion undrawn on its revolver.

In March 2015, the partnership entered into a new five-year $2.5 billion revolver due 2020 which replaced a $1.5 billion revolving credit facility due 2018. The revolver limits leverage (as defined by the bank agreement) to 5.0x at the end of each quarter. With certain acquisitions, leverage could temporarily increase to 5.5x. The bank definition of EBITDA gives pro forma credit for acquisitions and material projects. The definition of debt carves out borrowings used for contango trades up to $500 million.

As of the end of 1Q15, bank defined leverage was 3.4x, leaving significant cushion for the bank covenant. Maturities are manageable and the next bond maturity is $175 million due in 2016.

Capital Expenditures: Sunoco Logistics expects 2015 expansion capex to be at least $2.5 billion. This figure was recently revised upward by $500 million following the partnership's announcement that it has acquired a 30% stake in a Bakken crude oil pipeline from Energy Transfer Partners L.P.(ETP; IDR: 'BBB-'/Stable Outlook). The current year's budget is slightly above 2014's spending of $2.4 billion. Fitch believes the bulk of Sunoco Logistics' capital spending is to be done on generally low-risk projects supported by contractual commitments for capacity. EBITDA should improve as these projects are completed and leverage normalize more toward the 3.5x to 4.0x targets.

Distributable Cash Flow and Coverage: Distributable cash flow (DCF) generated in the LTM ending March 31, 2015 was $752 million. The distribution coverage was strong at 1.5x.

Fitch believes the current coverage ratio is high and will likely decline as distributions continue to grow. In recent years, the year-end coverage ratio ranged from a high of 2.4x in 2012 to a low of 1.3x in 2010.

Opportunities from its Sponsor: The partnership's sponsor, ETP has its own substantial projects and Sunoco Logistics is expected to benefit from its affiliation with ETP. Sunoco Logistics and ETP have recently announced that Sunoco Logistics will now have a 30% stake in the Bakken Pipeline project which is jointly owned with ETP and Phillips 66. Sunoco Logistics is expected to operate the completed pipeline.

ETP owns the general partner interest, incentive distribution rights and a 27% limited partnership interest in Sunoco Logistics.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--EBITDA exceeds $1 billion in 2015 and increases significantly after that given large new projects scheduled to come on line;

--Growth capex in the current year approximates $2.5 billion and maintenance capex is $70 million;

--In 2015, proceeds from debt and equity issuances will be used to fund spending in a balanced manner to protect the balance sheet.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Positive rating action is not expected at this time. Leverage would need to be reduced to below 3.0x on a sustained basis.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Leverage (defined as debt-to-adjusted EBITDA) in excess of 4.5x on a sustained basis.

--Increased exposure to market-sensitive businesses and other more volatile operations without offsetting adjustments.

Applicable Criteria and Related Research:

--'2015 Outlook: Crude Oil and Refined Products Pipelines (Positioned to Withstand Lower Commodity Prices)' (December 2014);

--'Pipelines, Midstream and MLP Stats Quarterly - Third Quarter 2014' (December 2014);

--'MLP End Game (Common Goals - Divergent Strategies) (November 2014);

--'What Investors Want to Know: Pipelines, Midstream and MLPs' (October 2014);

--'Midstream Spending Significantly Rising for MLPs and C-Corps' (August 2014);

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 2014)';

--'Rating Pipelines, Midstream and MLPs - Sector Credit Factors' (January 2014).

Applicable Criteria and Related Research:

Rating Pipelines, Midstream and MLPs - Sector Credit Factors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722082

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Midstream Spending Significantly Rising for MLPs and C-Corps

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=759467

What Investors Want to Know: Pipelines, Midstream and MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=785149

MLP End Game (Common Goals - Divergent Strategies)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=802308

Pipelines, Midstream and MLP Stats Quarterly - Third-Quarter 2014 (Third-Quarter Review)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=834968

2015 Outlook: Crude Oil and Refined Products Pipelines (Positioned to Withstand Lower Commodity Prices)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=839808

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984520

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst:
Kathleen Connelly, +1-212-908-0290
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Peter Molica, +1-212-908-0288
Senior Director
or
Committee Chairperson:
Shalini Majahan, +1-212-908-0351
Managing Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
[email protected]
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Chevron gets Street-High PT at Piper Sandler on booming oil prices
• ISO 14001:2026 Is Here: What Organizations Need to Know and How Omnex Can Help with the Transition
• Light Verify Loans by Credditt Expands Loan Requests Up to $50,000