New York, May 27, 2020 -- Moody's Investors Service ("Moody's") affirmed
Par Petroleum, LLC's (Par) Corporate Family Rating (CFR) at
B1 and Probability of Default Rating (PDR) at B1-PD. Moody's
also affirmed the ratings of both Par's senior secured notes due
2025 and senior secured term loan due 2026 at B1. Moody's
assigned a B1 rating to Par's proposed $100 million of senior
secured notes due 2026. Par's Speculative Grade Liquidity
(SGL) rating was downgraded to SGL-3 from SGL-2.
The outlook was changed to negative from stable.
"The change in Par's outlook to negative reflects our expectation
for rising leverage in 2020 amid challenging industry conditions as well
as uncertainties about timing and scope of recovery in refined products
demand," said Jonathan Teitel, a Moody's analyst.
Assignments:
..Issuer: Par Petroleum, LLC
....Senior Secured Notes, Assigned B1
(LGD3)
Downgrades:
..Issuer: Par Petroleum, LLC
.... Speculative Grade Liquidity Rating,
Downgraded to SGL-3 from SGL-2
Affirmations:
..Issuer: Par Petroleum, LLC
.... Probability of Default Rating,
Affirmed B1-PD
.... Corporate Family Rating, Affirmed
B1
....Senior Secured Term Loan, Affirmed
B1 (LGD3 from LGD4)
....Senior Secured Notes, Affirmed B1
(LGD3 from LGD4)
Outlook Actions:
..Issuer: Par Petroleum, LLC
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
Par's B1 CFR reflects modest scale and benefits from its integrated
asset base for logistics, transportation, storage and retail
in several niche markets. Par is taking steps to manage through
the large decline in demand for refined products including reduced throughput
rates. Moreover, Par has reduced or deferred certain capital
spending and operating expenses. It can further defer certain expenditures
if necessary. While these expenditure cuts are meaningful to contend
with the current challenging operating environment, Moody's
expects the company's profitability, cash flow and leverage
to be negatively impacted by the decline in refined products demand in
2020.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The refining and marketing
sector has been affected by the shock given its sensitivity to demand
for refined products and to commodity prices. Moody's regards the
coronavirus outbreak as a social risk under its ESG framework, given
the substantial implications for public health and safety. The
change in the outlook to negative reflects the risk to Par's credit
quality of the breadth and severity of the refined products demand shock
to its operations and cash flow.
The SGL-3 rating reflects Moody's expectation that Par will
maintain adequate liquidity over the next twelve months. As of
March 31, 2020, the company had $62 million of cash
and an undrawn ABL revolver that expires in December 2022 with a borrowing
base of $49 million. Net proceeds from the proposed senior
secured notes would increase cash but potentially come at a high cost
of capital. Important to the company's liquidity are inventory
financing agreements which mature on various dates in 2021 so renewals
will be key. As of March 31, 2020, the company had
$400 million outstanding under such arrangements. The company's
next debt maturity is that of its $49 million convertible senior
notes due June 2021.
Par's $300 million of senior secured notes maturing 2025,
$238 million senior secured Term Loan B maturing 2026 and proposed
$100 million of senior secured notes maturing 2026 are rated B1,
the same as the CFR. The secured notes and term loan, which
comprise the substantial majority of the company's debt, rank
pari passu and secured by first priority liens on substantially all property
and assets excluding certain property that is collateral under the ABL
revolver and inventory financing agreements. They are guaranteed
on a senior unsecured basis as to the payment of principal and interest
by its parent company, Par Pacific Holdings, Inc. The
company also has $49 million of convertible senior unsecured notes
due 2021, a $44 million retail property term loan due 2024
secured by certain retail properties in Hawaii, and $7 million
of other term loan debt largely comprised of a loan taken out in April
2020 to finance property in Hawaii.
The negative outlook reflects Moody's expectation that Par's
credit metrics will weaken in 2020 in an environment of lower refined
products demand while considering uncertainties about timing and scope
of future recovery.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a downgrade include debt/EBITDA above 4.5x;
retained cash flow to debt below 10%; or weakening liquidity.
Factors that could lead to an upgrade include further growth in scale
and diversification; debt/EBITDA below 3.5x; and retained
cash flow to debt over 20%.
The principal methodology used in these ratings was Refining and Marketing
Industry published in November 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1040610.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Par Petroleum, LLC, headquartered in Houston, Texas,
is a wholly-owned subsidiary of Par Pacific Holdings, Inc.,
a publicly-traded energy company with refining operations,
retail and logistics operations across several states including Hawaii,
Washington and Wyoming.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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.
Jonathan Teitel, CFA
AVP-Analyst
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
