Fitch Assigns 'BBB' Rating to Sunoco Logistics Notes Due 2023 and 2043
NEW YORK -- January 7, 2013
Fitch Ratings assigns Sunoco Logistics Partners L.P.'s (Sunoco Logistics)
proposed issuance of senior unsecured notes due 2023 and 2043 'BBB'. The notes
are to be issued by Sunoco Logistics Partners Operations L.P. and guaranteed
by Sunoco Logistics. The new notes will rank pari passu with the company's
senior unsecured debt.
Sunoco Logistics plans to use proceeds to reduce revolver borrowings, and for
general partnership purposes which include partially funding the $700 million
capex program for 2013.
Fitch currently rates Sunoco Logistics and Sunoco Partners Operations as
Sunoco Logistics Partners L.P.
--Long-term 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'.
The Rating Outlook for both Sunoco Logistics and Sunoco Logistics Partners
Operations is Stable.
KEY RATING DRIVERS
Key rating factors which support the rating include:
--Diversified asset base that serves high-demand markets;
--Stable, fee-based operations that account for a majority of the
--Supportive financial credit metrics that benefit from a less aggressive
capital structure relative to its peers.
The ratings also factor in the following concerns:
--Volatility and working capital needs associated with market-related
--Potential for changes in strategy following the acquisition by lower rated
Energy Transfer Partners (ETP; rated 'BBB-'), including a more aggressive
business strategy or financial policy.
Leverage: At the end of the third quarter of 2012 (3Q'12), debt to adjusted
leverage (defined by Fitch as debt to adjusted EBITDA) was 2.3x which remains
below 2.8x at the end of 2011 and 3.3x at the end of 2010. With higher debt
and growing EBITDA, Fitch anticipates leverage should be in the range of 2.5x
to 3.0x at the end of 2013.
Adequate Liquidity: At the end of 3Q'12, Sunoco Logistics had $408 million of
liquidity which consisted of $2 million of cash and nearly $406 million
available on its three revolving bank facilities. Of the three revolvers, only
one will expire in the near term (the $200 million revolver matures in August
2013). The next bond maturity is 2014 when $175 million is due.
Capital Expenditures: Sunoco Logistics expects 2013 capex to be approximately
$700 million. This is a significant increase from growth spending of $350
million expected for 2012. In 2012, the company used funds to grow organically
versus 2011 when it spent $494 million on acquisitions and $213 million on
Distributable Cash Flow and Coverage: Distributable cash flow (DCF) for the
latest 12 months (LTM) ending 3Q'12 was $547 million, a significant increase
from $388 million in 2011. The distribution coverage for the LTM ending 3Q'12
was healthy at 2.4x, which was well above 1.8x at the end of 2011. Fitch
believes the current coverage ratio is high and will likely revert to
historical levels as distributions continue to grow.
Energy Transfer Partners L.P. (ETP; IDR 'BBB-'/Negative Outlook) owns the 2%
general partner interest and a limited partnership interest of 31.7% in Sunoco
WHAT COULD TRIGGER A RATING ACTION
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--An increase in size and scale along with a significant decrease in leverage
to below 2.0x over a sustained period of time.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--Leverage (defined as debt to adjusted EBITDA) in excess of 3.5x on a
--Higher leverage either for high multiple acquisitions or to fund growth
projects above and beyond planned debt increases.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' Aug. 8, 2012;
--'2013 Outlook: North American Oil & Gas' Dec. 13, 2012
--'2013 Outlook: Crude Oil and Refined Products Pipelines' Nov. 29, 2012;
--'2013 Outlook: Midstream Services and MLPs' Nov. 29, 2012;
--'Eagle Ford Shale Report: Midstream and Pipeline Sector Economics Driving
Growth' Oct. 15, 2012;
--'Pipelines, Midstream, and MLP Stats Quarterly - Second Quarter 2012' Sept.
--'Top Ten Questions Asked by Pipeline, Midstream, and MLP Investors' May 22,
--'Master Limited Partnerships 101' Nov. 1, 2011.
Applicable Criteria and Related Research:
Corporate Rating Methodology
2013 Outlook: North American Oil & Gas
2013 Outlook: Crude Oil and Refined Products Pipelines
2013 Outlook: Midstream Services and MLPs
Eagle Ford Shale Report (Midstream and Pipeline Sector -- Economics Driving
Pipelines, Midstream, and MLP Stats Quarterly -- Second-Quarter 2012
Top Ten Questions Asked by Pipeline, Midstream and MLP Investors
Master Limited Partnerships 101
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