Fitch Affirms Sunoco Logistics at 'BBB'; Outlook Stable
NEW YORK -- April 28, 2014
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 $3.1 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
--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 2014 as Sunoco
Logistics funds growth with debt for expansion projects;
--Volatility and working capital needs associated with market-related
--Potential for changes in strategy following the acquisition by lower rated
Energy Transfer Partners (ETP, 'BBB-'/Stable Outlook), including a more
aggressive business strategy or financial policy.
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 2013 adjusted
EBITDA was $871 million and was comprised of: 40% crude oil pipelines, 27%
crude oil acquisition and marketing, 27% terminal facilities, and 6% from
refined products pipelines.
The crude oil pipelines are mostly located in Oklahoma and Texas. It has 4,900
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 sell crude primarily in the
The terminals facilities have oil and refined products storage capacity of 46
million barrels including 22 million barrels of storage and Nederland, Texas,
5 million at Marcus Hook, PA (refined products and natural gas liquids
terminal), 40 refined product terminals in the northeast, Midwest and
southwest. It also has several refinery terminals in the northeast. The
refined products pipelines have 2,500 miles of refined products pipelines and
joint venture interest in four refined products pipelines. This segment should
also see substantial growth in the future due to NGL pipeline projects that
are currently being developed.
Leverage: At Dec. 31, 2013, leverage (as defined as Fitch as debt to adjusted
EBITDA) was 2.9x. With the $1 billion of notes offered in March 2014, Fitch
now expects leverage at the end of the year to be just over 4.0x. If leverage
remains over 4.0x-4.25x for a sustained period of time beyond then, Fitch may
take negative rating action.
Adequate Liquidity: At the end of 2013, Sunoco Logistics had $1.3 billion of
liquidity which consisted of $39 million of cash and $1.3 billion undrawn on
its revolver. The company has 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 can
temporarily increase to 5.5x. As of the end of 2013, bank defined leverage was
2.8x 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 2014 expansion capex to be at
least $1.3 billion which would be a significant increase from $965 million of
organic expansion capex in 2013.
Distributable Cash Flow and Coverage: Distributable cash flow (DCF) generated
in 2013 was $655 million, an increase from $600 million in 2012. The
distribution coverage ratio for 2013 was strong at 1.9x.
Fitch believes the current coverage ratio is high and will likely decline as
distributions continue to grow. In recent years, the yearend coverage ratio
ranged from a high of 2.4x in 2012 to a low of 1.3x in 2010.
Energy Transfer Partners L.P. (ETP; IDR 'BBB-'/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:
--Positive rating action is not expected at this time. Leverage would need to
be reduced to below 3.0x on a sustained basis along with a significant
increase in scale.
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-4.25x 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. 5, 2013);
--'Rating Pipelines, Midstream, and MLPs - Sector Credit Factors' (Jan. 13,
--'Short-Term Ratings Criteria for Non-Financial Corporates', (April 2, 2013);
--'2014 Outlook: Crude Oil and Refined Products Pipelines' (Dec. 10, 2013);
--'Pipelines, Midstream, and MLP Stats Quarterly - Third Quarter 2013' (Dec.
--'Investor FAQs: Recent Questions on the Pipeline, Midstream and MLP Sectors'
(Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Rating Pipelines, Midstream and MLPs - Sector Credit Factors
Short-Term Ratings Criteria for Non-Financial Corporates
2014 Outlook: Crude Oil and Refined Products Pipelines
Pipelines, Midstream, and MLP Stats Quarterly Third-Quarter 2013
Investor FAQs: Recent Questions on the Pipeline, Midstream, and MLP Sectors
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Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Mark C. Sadeghian, CFA
Brian Bertsch, +1-212-908-0549 (New York)
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