Fitch Affirms Sunoco Logistics 'BBB' Rating; Outlook Stable
NEW YORK -- April 29, 2013
Fitch Ratings affirms the ratings for 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 '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.
Today's rating action impacts approximately $2.2 billion of debt outstanding.
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
--Supportive financial credit metrics including conservative debt levels and 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:
--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-' with a Stable Outlook by Fitch),
including a more aggressive business strategy or financial policy.
Leverage: At Dec. 31 2012, debt to adjusted EBITDA was 2.4x, considerably
below 2.8x for 2011 and 3.3x for 2010. With higher debt balances after $700
million of notes issued in January 2013 and growing EBITDA, Fitch anticipates
leverage should be approximately 3.0x for 2013.
Adequate Liquidity: At the end of 2012, Sunoco Logistics had $449 million of
liquidity which consisted of $3 million of cash and $446 million available on
its three revolving bank facilities. Maturities are manageable and include
nothing due this year, $175 million due in 2014, and $175 million due in 2016.
Of the three revolvers, only one will expire in the near term (a 364-day $200
million revolver matures in August 2013).
The $200 million revolver due 2013 and the $350 million revolver due 2016
contain covenant restrictions which include a limit of EBTIDA (as defined by
the bank agreement) to debt at 5.0x. The ratio can increase to 5.5x with
acquisitions. In addition to these two revolvers, there is a $35 million
revolver due 2015 at one of its joint ventures.
Capital Expenditures: Sunoco Logistics expects 2013 expansion capex to be
approximately $700 million. This is a significant increase from growth
spending of $324 million for 2012. Maintenance capex is projected to be $65
million in 2013 versus $50 million in 2012. In January 2013, the company
issued $700 million of notes ($350 million due 2023 and $350 million due 2043)
and proceeds were to prefund capital spending and for other partnership
Distributable Cash Flow and Coverage: Distributable cash flow (DCF) generated
in 2012 was $600 million, a significant increase from $388 million in 2011.
The distribution coverage for 2012 was healthy at 2.4x, 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. In recent years, the
coverage ratio ranged from the recent high of 2.4x to a low of 1.3x in 2010 as
seen in 2010.
Strong EBITDA and DCF Growth: Sunoco Logistics targets a blend of EBITDA from
stable fee-based ratable business to market related business of 80% to 20%,
respectively. In 2012, the butane blending business and crude marketing
business (both driven by market conditions) outperformed Fitch's expectations
Energy Transfer Partners L.P. (ETP IDR 'BBB-' with a Stable Outlook) owns the
2% general partner interest and a 32% interest in Sunoco Logistics.
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--An increase in size and scale with maintenance of leverage near current
levels 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 4.0x on a
--Increased exposure to market-sensitive businesses and other more volatile
operations without offsetting adjustments.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'Short-Term Ratings Criteria for Non-Financial Corporates', April 2, 2013;
--'Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs', April
--'The Top Ten Differences Between MLP and Corporate Issuers', Feb. 19, 2013
--'Pipelines, Midstream, and MLP Stats Quarterly - Third Quarter 2012', Jan.
--'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;
--'Master Limited Partnerships 101', Nov. 1, 2011.
Applicable Criteria and Related Research
Corporate Rating Methodology
Short-Term Ratings Criteria for Non-Financial Corporates
Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs
The Top Ten Differences Between MLP and Corporate Issuers
Pipelines, Midstream, and MLP Stats Quarterly -- Third-Quarter 2012
2013 Outlook: North American Oil & Gas
2013 Outlook: Crude Oil and Refined Products Pipelines
Eagle Ford Shale Report (Midstream and Pipeline Sector -- Economics Driving
Master Limited Partnerships 101
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.
Kathleen Connelly, +1 212-908-0290
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Ralph Pellecchia, +1 212-908-0586
Sean Sexton, +1 312-368-3130
Brian Bertsch, +1 212-908-0549
Press spacebar to pause and continue. Press esc to stop.