Approximately $24.5 billion rated debt affected
New York, April 30, 2018 -- Moody's Investors Service, ("Moody's") affirmed
Marathon Petroleum Corporation's (MPC) Baa2 senior unsecured debt
rating with the outlook remaining stable, and placed Andeavor's (ANDV) Baa3
senior unsecured debt rating under review for upgrade. Moody's
also placed Andeavor Logistics LP's (ANDX) Ba1 Corporate Family
Rating (CFR) and Ba1 senior unsecured notes rating under review for upgrade.
MPLX LP's (MPLX) Baa3 unsecured debt rating and stable outlook are
not affected by these rating actions.
The rating actions follow MPC's announcement on April 30 that it
will acquire Andeavor in an 85% equity-financed transaction
for approximately $23 billion, plus the assumption of $3.5
billion of ANDV debt. The acquisition is expected to close by early
in 2018's fourth quarter, after which the ANDV and ANDX reviews
would be concluded. Moody's expects ANDV's debt will
be upgraded to equal MPC's Baa2 rating assuming ANDV's debt
is pari passu with MPC's debt. ANDX could be upgraded to
Baa3 based on its ownership by a stronger parent. At close,
MPC will own the general partnerships (GP) of MPLX and ANDX, which
will remain separate master limited partnerships (MLPs).
"Reflecting the largely equity financed nature of MPC's acquisition
of ANDV, Moody's sees little change in the key pro forma debt/EBITDA
and retained cash flow (RCF) to debt financial metrics adjusted for the
acquisition than what it had been projecting for MPC on a stand-alone
basis," commented Andrew Brooks, Moody's Vice
President. "However, the acquisition adds considerably
to the scale of MPC's refining, marketing and logistics operations,
while also enhancing the company's geographic reach and operating
diversification."
On Review for Upgrade:
..Issuer: Andeavor
....Senior Unsecured Notes, Placed on
Review for Upgrade, currently Baa3
..Issuer: Andeavor Logistics LP
.... Probability of Default Rating,
Placed on Review for Upgrade, currently Ba1-PD
.... Corporate Family Rating, Placed
on Review for Upgrade, currently Ba1
....Pref. Stock Preferred Stock,
Placed on Review for Upgrade, currently Ba3 (LGD6)
....Senior Unsecured Notes, Placed on
Review for Upgrade, currently Ba1 (LGD4)
Outlook Actions:
..Issuer: Andeavor
....Outlook, Changed To Rating Under
Review From Stable
..Issuer: Andeavor Logistics LP
....Outlook, Changed To Rating Under
Review From Positive
..Issuer: Marathon Petroleum Corporation
....Outlook, Remains Stable
Affirmations:
..Issuer: Marathon Petroleum Corporation
....Senior Unsecured Commercial Paper,
Affirmed P-2
....Senior Unsecured Notes, Affirmed
Baa2
RATINGS RATIONALE
MPC's Baa2 senior unsecured rating is supported by the large scale,
strong process complexity, attractive geographic locations and integrated
network comprising its 1.9 million barrel per day core refining
assets. MPC also benefits from the earnings diversification achieved
through its investment in midstream master limited partnership MPLX LP,
which it controls as GP and in which it holds a 61% limited partner
(LP) stake, and its 2,740 Speedway and 5,600 Marathon
branded retail distribution channels. This operating profile will
be further enhanced through the acquisition of ANDV's 10 refineries,
over 3,200 retail marketing and convenience store sites and its
GP interest and 59% LP stake in MLP ANDX. The combination
across all three operating segments is largely complementary with little
apparent geographic overlap. The 85% equity financing of
the acquisition (with the balance shared between cash on hand and short
term borrowings) strongly supports MPC's Baa2 rating affirmation.
Ratings are further supported by the prospect of ongoing positive free
cash flow generation, which Moody's expects will be augmented
by acquisition synergies and near term prospects for widening margins
across the company's combined fleet of complex refineries.
While free cash flow affords the possibility of debt reduction,
MPC has conducted an aggressive program of enhancing shareholder returns
over the past several years utilizing asset dropdown proceeds from MPLX
and free cash flow to fund sizable share repurchases and dividend increases
rather than reducing debt levels, which has constrained ratings
upside. Ratings also consider the execution risk embedded in combining
the operations of each company, although MPC has shown a strong
record managing previous large scale acquisitions.
While MPC has stated that it will legally assume ANDV's debt upon
the closing of the acquisition, it has not disclosed specifics as
to the means by which the debt will be assumed, which will principally
factor into Moody's review of ANDV for upgrade. Moody's
will also assess the execution risk of merging ANDV's operations
into those of MPC as part of its review.
Moody's review of ANDX for upgrade will be a function of its review
of ANDV for upgrade and its ultimate place in MPC's corporate structure.
In the event of Baa2 GP sponsorship, ANDX would likely be upgraded
to Baa3 with its Ba1 CFR, Ba1-PD PDR and SGL-3 Speculative
Grade Liquidity ratings withdrawn.
Moody's expects MPC to maintain ample liquidity. It maintains
a $2.5 billion unsecured revolving credit facility and a
$1.0 billion 364-day facility, under which
there were no borrowings at March 31, while ANDV maintains a $3.0
billion unsecured revolver. Scaled according to pro forma crude
throughput, MPC intends to maintain total liquidity approximating
$8.5 billion in support of its refining and marketing operations.
Balance sheet cash at March 31 totaled $4.7 billion,
much of which was derived from the proceeds of asset dropdowns to MPLX.
MPC bought back $1.33 billion of its common shares during
the quarter, and has authorized an incremental share buyback of
$5.0 billion. MPLX and ANDX each maintain their own
unsecured credit facilities, which are non-recourse to their
respective GP sponsors. As a possible source of alternative liquidity,
MPC's and ANDV's LP stakes in their respective MLPs represented
approximately $23 billion of value as of April 30.
The rating outlook is stable. MPC's ratings could be upgraded presuming
the company continues to generate strong free cash flow with consolidated
debt/EBITDA approaching 2x, refining and marketing-only stand-alone
debt/EBITDA improving to 1.5x or better and RCF to debt exceeding
30% during cyclical lows. MPC's ratings could be downgraded
if consolidated debt/EBITDA exceeds 3x in 2019 and beyond, if refining
and marketing-only stand-alone leverage exceeds 2.5x
or if consolidated RCF to debt falls below 15%. Excessive
transactions in pursuit of shareholder value that reduce or negatively
affect the composition of MPC's cash flow stream could also result in
a downgrade.
The methodologies used in these ratings were Refining and Marketing Industry
published in November 2016, and Midstream Energy published in May
2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Marathon Petroleum Corporation is a large independent refining and marketing
company headquartered in Findlay, Ohio. It is also the general
partner of MPLX LP, a publicly traded midstream logistics master
limited partnership also headquartered in Findlay, Ohio.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Andrew Brooks
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653