4 Min Read
Jan 7 - 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 follows: 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 partnership's EBITDA; --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 operations; --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 capex. 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 Logistics. 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 sustained basis. --Higher leverage either for high multiple acquisitions or to fund growth projects above and beyond planned debt increases.