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09 May 2005
MOODY'S COMMENTS ON SUNOCO LOGISTICS ACQUISITION
New York, May 09, 2005 -- Moody's Investors Service commented that Sunoco Logistics Partners
L.P.'s announced plan to acquire certain pipeline
and terminal assets from an ExxonMobil subsidiary is consistent with the
L.P.'s growth strategy and will not adversely affect Sunoco
Logistics Partners Operations L.P.'s ("OLP")
credit profile, as reflected in its Baa2 senior unsecured long-term
debt rating and stable rating outlook. Sunoco Logistics Partners
L.P., a Master Limited Partnership ("MLP"),
has signed a definitive agreement with Mobil Pipe Line Company to purchase
a 187-mile crude oil pipeline system and associated terminal facilities
in Texas for approximately $100 million, plus about $18
million in planned additional capital spending. The size of the
transaction, the MLP's conservative financial targets,
and the fit of the assets, which are fairly stable cash generating
pipeline and terminal operations consistent with the MLP's growth
strategy, all lend support to the current rating and outlook.
The transaction, which is expected to be funded up front with a
combination of bank debt and available cash balances, is anticipated
to close during the third quarter of 2005. The size of the acquisition
is within the scope of the OLP's ratings and financial covenants in its
bank credit agreement (guaranteed by the MLP). Key factors for
the Baa2 stable outlook are the MLP's financing policies and strategies,
including Moody's expectation that the MLP remains committed to
balanced equity funding on a timely basis, in more sizable transactions
such as this one, to mitigate financial leverage and to maintain
a solid balance sheet. The stable outlook also assumes the MLP
will continue to manage cash distributions conservatively to ensure adequate
The acquisition, which will be integrated into the Western Pipeline
operating segment, reflects the OLP's strategy of acquiring
mid-stream assets that optimize the existing asset base and generate
diversified and stable cash flows in support of the MLP distribution policy.
The acquired assets include 187 miles of crude pipeline in two segments
in Texas: a 16-inch segment providing deliveries from Corsicana
to Wichita Falls, 2.9 million barrels of storage capacity
at Corsicana, and a 12-inch segment (currently idle) that
extends from Kilgore to Corsicana. The Corsicana station connects
to the OLP's 43.8%-owned West Texas Gulf Pipe
Line (WTG) at Wortham Station, currently via a third party-owned
pipeline. The acquisition also entails an expected $18 million
of incremental capital to construct a new wholly-owned 20-mile
pipeline and injection station that will replace the third party pipeline.
The addition of the Mobil Pipe Line assets will also enable the OLP to
reactivate WTG's 26-inch south leg, which connects
Wortham Station to its Nederland Terminal on the Gulf Coast, accommodating
increased deliveries of domestic and imported crude northward to refiners
and other pipelines at Wichita Falls.
The OLP's Baa2 rating also continues to be supported by its strategic
importance to and operational integration with the refining and retail
operations of Sunoco Inc. (rated Baa2, stable outlook),
which holds a 62.2% interest in Sunoco Logistics Partners
L.P., including a 2% general partnership interest.
The OLP derives a large portion of its cash flows from storage and throughput
agreements with a Sunoco subsidiary and continues to rely on Sunoco for
various general and administrative services and maintenance expenditures.
In Moody's view, these factors and the MLP's consolidation
on Sunoco's balance sheet provide strong incentives for Sunoco to continue
to support the MLP's operations.
Sunoco Logistics Partners Operations L.P., a Delaware
limited partnership headquartered in Philadelphia, Pennsylvania,
is a subsidiary of Sunoco Logistics Partners L.P.,
a Master Limited Partnership. Sunoco Inc. is also headquartered
in Philadelphia, Pennsylvania.
Corporate Finance Group
Moody's Investors Service
Thomas S. Coleman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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