TEXT - S&P rates Sunoco Logistic Partners Operations LP

Mon Jan 7, 2013 3:55pm EST

Overview
     -- Sunoco Logistics Partners Operations L.P., a wholly owned subsidiary 
of Sunoco Logistics Partners L.P. (SXL), plans to issue senior unsecured notes 
due 2023 and 2043.
     -- We expect the partnership to use the proceeds to repay SXL's revolving 
credit facility balances and for general partnership purposes, including 
partly financing 2013 expansion capital spending.
     -- We are assigning our 'BBB-' rating to the proposed note issuance.
     -- Our stable rating outlook on Sunoco Logistics Partners reflects our 
outlook on its parent, Energy Transfer Partners L.P. (ETP). We expect Sunoco 
Logistics will continue to aggressively build out its organic growth projects, 
principally related to its crude oil pipeline business segment.

Rating Action
On Jan. 7, 2013, Standard & Poor's Ratings Services assigned its 'BBB-' rating 
to the proposed senior note issuance of Sunoco Logistics Partners Operations 
L.P., a wholly owned subsidiary of Philadelphia-based 
"here
&sid=881773&sind=A&" SXL will fully and unconditionally guarantee the notes. 
We expect the partnership to use the proceeds to repay SXL's revolving credit 
facility balances and for general partnership purposes, including partly 
financing 2013 capital spending. The outlook on the rating is stable. Pro 
forma for the debt issuance, SXL will have slightly more than $2 billion of 
balance-sheet debt.

Rationale
The rating on SXL is linked with that of Energy Transfer Partners L.P. 
(BBB-/Stable/--), reflecting the significant amount of control ETP's 
management can exert over SXL, given its role as general partner. ETP can 
significantly influence SXL's business activities and financial policies, 
including setting distribution levels. Absent ownership constraints, SXL's 
stand-alone credit profile is slightly higher at 'BBB'.SXL's stand-alone 
credit quality is influenced by the stable cash flows that it generates from 
its pipeline and terminal assets and the entity's moderate financial leverage. 
Partly offsetting these strengths is the partnership's market-related business 
activities that can add volatility to cash flows.

SXL owns about 8,000 miles of crude oil and refined products pipelines and 42 
active refined product terminals and has 23 million barrels of crude oil 
storage capacity. SXL's core pipeline and terminal operations generate 
consistent cash flow under most industry conditions. The partnership does, 
however, use some of its own storage assets during contango markets (i.e., 
when the spot price of oil is lower than the futures price) to generate 
additional cash flow. Although these activities are working-capital intensive, 
they do not involve much risk. However, they may not be repeatable, because 
market conditions frequently change.

In our 2013 base case forecast, we assume the crude-oil acquisition and 
marketing business segment will account for about 25% of EBITDA. These include 
market-related activities such as contango storage and accounted for about 30% 
of the partnership's consolidated EBITDA in 2012.

Like most midstream energy master limited partnerships, SXL's growth has 
stemmed from a combination of acquisitions and organic growth projects. In 
2013, we have assumed SXL will spend about $700 million (excluding 
acquisitions) of expansion capital, primarily to expand its crude 
transportation business in West Texas (namely the Permian); its 
Marcellus-based Mariner West and East NGL takeaway pipelines; a refined 
products pipeline from the Midwest to Pennsylvania; and its butane blending 
business. SXL's financial ratios are solid due to increasing cash flows from 
new projects and the performance of its crude oil acquisition and marketing 
business. Under our base case forecast, we assume modest throughput growth for 
SXL's refined products and crude oil pipelines and an increase of about 5% in 
throughput for the terminal facilities segment. For 2013, we expect SXL to 
have financial leverage of about 3x to 3.25x and EBITDA interest coverage 
between 5x and 6x.

We discount the future benefit to cash flow from contango activities in our 
base case forecast. Our forecast financial ratios exclude any working-capital 
debt or EBITDA associated with such additional market-related opportunities. 
We believe distribution coverage could be robust in 2013 at 1.5x or higher (we 
expect roughly 2x for year-end 2012) due to higher cash flows from the 
partnership's expansion projects and market-related contango activities.

For our latest view on SXL's general partner, Energy Transfer Partners, see 
the research update published Oct. 8, 2012, on RatingsDirect.

Liquidity
We assess SXL's liquidity as adequate, with sources divided by uses of at 
least 1.3x for the next 12 months pro forma for the note issuance. Our 
assumptions for cash sources include funds from operations of about $600 
million; proceeds from the bond issuance; and availability of $254 million as 
of Sept. 30, 2012, under its $350 million credit facility due in August 2016. 
We do not include SXL's $200 million, 364-day facility due in August 2013 in 
our liquidity analysis. Our assumptions for cash uses include total capital 
spending of about $700 million, about $250 million of distributions, and $50 
million in market-related contango opportunities. The partnership has no 
near-term debt maturities.

As of Sept. 30, 2012, SXL was in compliance with the leverage covenant (3.24x 
actual compared with the maximum level of 5x) under its credit agreements. The 
maximum leverage under the $350 million five-year and $200 million 364-day 
credit facilities is 5x and 5.5x during acquisition periods. We expect SXL to 
remain in compliance with these covenants, as the partnership has a 
significant EBITDA cushion of about 50% before it trips its more restrictive 
5x leverage covenant.
Outlook
Our stable rating outlook on Sunoco Logistics Partners reflects our outlook on 
Energy Transfer Partners. We expect Sunoco Logistics will continue to 
aggressively build out its organic growth projects, principally related to its 
crude oil pipeline business segment. At this time, we consider an upgrade 
unlikely because of Sunoco Logistics' ownership by ETP. Our ratings on ETP and 
Energy Transfer Equity L.P. could influence our ratings on Sunoco Logistics 
because they will ultimately control Sunoco Logistics and have significant 
influence over its financial policies. A downgrade of ETP would likely result 
in a lower rating on Sunoco Logistics.

Related Criteria And Research
     -- Key Credit Factors: Criteria For Rating The Global Midstream Energy 
Industry, April 18, 2012

Temporary contact numbers: Michael Grande 609-240-3731; William Ferara 
917-557-1292

Ratings List
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&sid=881773&sind=A&"
 Corporate credit rating               BBB-/Stable/--

New Ratings
 Senior unsecured
  Notes due 2023                   BBB-
  Notes due 2043                   BBB-
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