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Rating Action:

Moody's affirms Louisiana Offshore Terminal Authority's unsecured notes at A3 and LOCAP's P-2 short-term rating on its commercial paper program

Global Credit Research - 20 Sep 2013

New York, September 20, 2013 -- Moody's Investors Service affirmed Louisiana Offshore Terminal Authority's unsecured debt obligations at A3. These bonds are fully and unconditionally guaranteed by LOOP, as the Louisiana Offshore Terminal Authority is merely the conduit through which LOOP issues this debt. The Louisiana Offshore Terminal Authority also issues Industrial Revenue Bonds (IRBs) on behalf of LOOP LLC that are classified as First Stage Debt backed by a Throughput & Deficiency (T&D) Agreement. These bonds are either backed by irrevocable letters of credit (LOC) that provide credit uplift based on the ratings of the respective issuing banks, or directly held by a bank. Moody's does not have a long term rating for LOCAP but affirms a P-2 rating on its commercial paper program.

RATINGS RATIONALE

The A3 rating on LOOP's unsecured debt obligations reflects the strategic importance and connectivity of LOOP's assets to its owners and the indirect benefit from the T&D Agreement provided via cross-default provisions that would put LOOP in default with its secured bondholders if there were a default on the unsecured bonds. We view the strategic importance of LOOP's asset and the cross-default provision as strong incentives for the owners to not allow the unsecured bonds to default. LOOP's T&D agreement has no maturity and is guaranteed by: Marathon Petroleum Corporation (50.7%, Baa2 positive), Shell Oil Company (46.1%, Aa2 stable), and Valero Energy Corp (3.2%, Baa2 stable).

While holding a unique position as the only US deepwater port and critical transporter of crude oil to refineries in the US Gulf Coast and up the Mississippi River, the A3 rating also reflects declining import volumes through LOOP's main oil line (MOL) marine terminal and a resulting weaker operating profile and higher leverage metrics. Growing domestic production volumes and prospects for declining foreign waterborne imports over the longer-term also elevate the execution risk of LOOP's expansion strategy to transition away from a pure import terminal to a domestic terminal.

Moody's rates LOCAP's short-term rating for commercial paper P-2. While liquidity is of paramount importance, the rating is influenced by our view of LOCAP's long-term credit profile. From that perspective we acknowledge LOCAP's strong credit qualities including its low business risk, historical financial stability, and strong sponsor relationships. Moreover, it also has a T&D Agreement that provides full credit support to the commercial paper program. This form of ownership support by subsidiaries of Marathon Petroleum Corp and Shell Oil Company mitigates the small size and scale of LOCAP's pipeline operation.

Traditionally, LOOP's offshore marine terminal has offloaded foreign waterborne crude import volumes. Crude imports are transported from the company's marine terminal to onshore storage facilities. The crude is stored in underground salt caverns and above ground storage tanks in Clovelly, Louisiana, providing approximately 68 million barrels of storage capacity. LOOP also provides direct pipeline connectivity from these storage facilities to over 2.4 million barrels of refining capacity, more than double the connectivity of all other Louisiana terminals.

In response to declines in its core import volumes, LOOP is transitioning its business model to handle rising domestic production volumes and connectivity to coastal refineries. LOOP's role as a strategic supply partner for US Gulf Coast and Midwest area will remain intact, yet reflects an accelerating shift to handle surging domestic production versus foreign imports. Higher levels of crude oil production from tight oil plays in the Bakken, Eagle Ford and Permian and advances in pipeline, rail and marine projects that improve access to these crudes for refineries in LOOP's market are displacing the demand for imports from the North Sea and West Africa. Concurrently, domestic medium sour production from the Gulf of Mexico continues to increase as the oil industry recovers from the post-Macondo drilling moratorium, resulting in further displacement of medium sour crude imports from the Middle East. In 2012, Middle East medium sour crude accounted for approximately 80% of LOOP's waterborne receipts.

LOOP has refinanced its capital structure which involved the extension of maturities and the decision to increase the amount of variable rate debt relative to fixed rate debt held by the company. Total balance sheet debt outstanding was $426 million as of 30 June 2013, with a split of 57% T&D secured (First Stage Debt) and 43% unsecured. While balance sheet debt remains flat, LOOP's leverage profile has deteriorated as a result of lower offloading revenues. LOOP's Debt/EBITDA (including Moody's standard adjustments) is about 4.63x as of 30 June2013. LTM EBITDA is $124 million, compared to $137 million at year end 2012 and $149 million at year end 2011. We do not anticipate revenues in the second half of 2013 to materially improve; rather we expect earnings weakness to increase leverage above 5.5x over the next 12 to 18 months.

LOOP's strategic infrastructure position, the credit strength of its sponsor-owners and cross default provisions that benefit the unsecured bondholders provide rating support. Ratings could be pressured downward if the T&D obligors' credit quality weakens. Additionally, over-aggressive growth expansion plans, materially weaker operating margins or higher cash distributions that compress credit metrics could create downward rating pressure. Given the single-asset nature of the LOOP system compared to its more diverse midstream peers, the current A3 rating has limited potential for upward movement. However, sustained financial improvement leading toward higher earnings retention coupled with sustained financial improvement in the credit ratings of the T&D obligors could result in an upgrade of the rating.

The principal methodology used in this rating was the Global Midstream Energy Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

LOOP LLC, headquartered in Covington, Louisiana, offloads and stores crude oil from foreign tankers and domestic producers in the Gulf of Mexico. LOOP has four pipelines that connect the company's onshore storage facility in Clovelly, Louisiana to refineries along the Mississippi River Refining Corridor.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael Somogyi
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Louisiana Offshore Terminal Authority's unsecured notes at A3 and LOCAP's P-2 short-term rating on its commercial paper program
No Related Data.

 

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