Fitch Affirms Merey Sweeny L.P.'s Senior Unsecured Bonds at 'BBB'; Outlook
CHICAGO -- April 4, 2013
Fitch Ratings affirms the 'BBB' rating on Merey Sweeny L.P.'s (MSLP) $350
million ($233.2 million outstanding) senior unsecured bonds due 2019. The
Rating Outlook is Stable.
KEY RATING DRIVERS:
--Sponsor Bond Guarantee: Phillips 66 and Phillips 66 Company irrevocably and
unconditionally guarantee the full and punctual payment of the outstanding
senior unsecured bonds as a primary obligor.
--Sponsorship Support: The sponsor is obligated to provide MSLP with financial
support for operating and capital costs and scheduled debt service via the
floor processing fee and capital calls.
--Strong Competitive Position: The competitive position of MSLP suggests its
sustainable long-term strategic and economic value to Phillips 66. This is
supported by the project's complexity, location, and access to privileged
crude supplies and feedstock.
WHAT COULD TRIGGER A RATING ACTION:
--Phillips 66 Credit Quality: A change in Phillips 66's credit quality may
result in a MSLP rating action.
The initial security package did not entitle bondholders to any security
interest in the project's assets or agreements, which is atypical of most
project financings. Under the terms of the Transfer Agreement between
ConocoPhillips (COP) and Petroleos de Venezuela S.A. (PDVSA), a call event
occurred when PDVSA breached its payment obligations in connection with its
curtailment of crude supply in 2009. The call event triggered a purchase
option in favor of COP, who exercised the option on Aug. 28, 2009 making COP,
or Phillips 66 post-separation, the sole sponsor. The Future Pledge Agreement
contains a springing lien mechanism that assigned a first priority security
interest in the sponsor's 100% interest in the partnership to the bondholders
upon the call option being exercised. As a result, a security interest in 100%
of the sponsor's equity interest in the project has been assigned to senior
As indicated by Fitch in previous reviews, PDVSA challenged COP's exercise of
the call option to acquire PDVSA's interest in MSLP on March 1, 2010. An
arbitration proceeding before the International Chamber of Commerce is
The Phillips 66 and Phillips 66 Company senior bond guarantee and sponsor
support obligations provide a specific, tangible linkage between the credit
quality of the sponsor and project. Fitch considers the credit rating of MSLP
to be equivalent to the credit rating of Phillips 66. Fitch notes that the
results of the arbitration proceedings will not alter or limit Phillips 66's
liability under the senior bond guarantee.
ConocoPhillips and PDVSA formed a partnership in 1998 to build, own, operate
and maintain certain facilities and improvements to the Sweeny Refinery. The
project consists of a delayed coker, vacuum tower, and associated facilities
within the refinery. The refinery has capacity to process 66,700 barrels per
day of light, sweet crude oil as well as 180,000 barrels per day of heavy,
MSLP is a wholly owned subsidiary of Phillips 66. Phillips 66 is the project
operator, off-taker, and responsible for any contractual sponsor support
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:
--'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012).
Applicable Criteria and Related Research
Rating Criteria for Infrastructure and Project Finance
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
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, Inc.
70 West Madison Street
Chicago, IL 60602
Press spacebar to pause and continue. Press esc to stop.