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Rating Action:

Moody's assigns Caa1 rating to Calumet Specialty Products' proposed unsecured notes

12 Jan 2022

New York, January 12, 2022 -- Moody's Investors Service (Moody's) assigned a Caa1 rating to Calumet Specialty Products Partners, L.P.'s ("Calumet") proposed senior unsecured notes due 2027. The existing ratings are unchanged, including the B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating, B1 rating on the senior secured notes and Caa1 ratings on the existing senior unsecured notes. The Speculative Grade Liquidity Rating is unchanged at SGL-3. The rating outlook is stable.

The proceeds from the proposed $300 million senior unsecured notes will be used in conjunction with borrowings under the revolving credit facility to refinance $325 million of existing notes due 2023.

"Calumet's debt refinancing and the extension of the revolving credit facility maturity date will improve its liquidity," stated James Wilkins, Moody's Vice President. "The company's leverage will not change meaningfully as a result of the refinancing transaction."

The following summarizes the rating activity.

Assignments:

..Issuer: Calumet Specialty Products Partners, L.P.

....Senior Unsecured Notes, Assigned Caa1 (LGD4)

RATINGS RATIONALE

Calumet's proposed senior unsecured notes are rated Caa1, one notch below the B3 CFR, reflecting the fact that the senior unsecured notes make up the majority of the debt capital structure, but are lower in priority ranking compared to the secured notes and secured obligations under the revolving credit facility. The secured notes have a first lien on substantially all the assets of Calumet and subsidiary guarantors, other than assets securing the ABL revolving credit facility (accounts receivable, inventory and cash) and the Great Falls refinery. Moody's believes the B1 rating on the secured notes are more appropriate than the ratings suggested by Moody's Loss Given Default (LGD) for Speculative Grade Companies methodology. Calumet's balance sheet debt (as of year-end 2021, pro forma for the proposed debt refinancing and redemption of the notes due 2023), included the secured ABL revolving credit facility (undrawn), the $200 million senior secured first lien notes and two unsecured notes issues totaling $850 million. Calumet's subsidiary, Montana Renewables, LLC (MRL), is the borrower under a $300 million senior secured term loan, which is non-recourse to Calumet. Borrowings under the term loan credit agreement are secured by substantially all of the assets of MRL and a pledge of 100% of the equity interests in MRL held by Montana Holdings.

The B3 CFR reflects Calumet's modest scale, elevated leverage and generally improving operating performance, but history of inconsistent free cash flow generation. Calumet has weak credit metrics for the B3 CFR as a result of the decline in demand for its products and margin erosion during the coronavirus pandemic. However, Moody's expects volume growth and margin expansion in 2022 will result in higher EBITDA and improved credit metrics, although capital expenditures for growth projects may result in negative free cash flow and no reduction in debt balances. Earnings and cash flow from the company's Montana Renewables project, which is scheduled to be operational by the end of 2022, will further improve Calumet's credit metrics and could lead to debt reduction in future years. In the third quarter 2021, Calumet reduced its debt with part of the proceeds from the sale of the Great Falls hydrocracker unit to its MRL subsidiary, which was financed with a third party term loan at MRL that is non-recourse to Calumet. The company benefits from geographic diversity of operations, a diverse customer base (no customer represents ten percent or more of revenues) and its numerous specialty products (some are recognized brands), which offer exposure to diverse end markets.

Calumet's SGL-3 Speculative Grade Liquidity rating reflects its adequate liquidity profile, supported by availability under the ABL revolving credit facility, cash balances ($10.8 million as of September 30, 2021) and operating cash flow that should cover most of its capital expenditures. The company has inventory financing agreements related to its two largest refineries (Great Falls and Shreveport) that mature June 30, 2023. The asset based revolver commitments total $600 million and it had a borrowing base of $346 million, and availability of $270 million as of September 30, 2021, after accounting for outstanding borrowings and letters of credit. The revolver has one springing financial covenant which currently provides that only if availability under the facility falls below the sum of the FILO loans plus the greater of: (i) 10% of the Borrowing Base; and (ii) $35 million, the company is required to maintain a Fixed Charge Coverage Ratio of at least 1.0 to 1.0 as of the end of each fiscal quarter.

The stable rating outlook reflects Moody's expectation that the company's earnings will improve as the US demand for its products recovers and it successfully executes on the Great Falls, Montana renewable diesel project.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The ratings could be upgraded if Calumet consistently generates positive free cash flow, as well as maintains retained cash flow to debt above 10% and leverage (debt / EBITDA) consistently below 4x. The ratings could be downgraded if it generates negative free cash flow or leverage is expected to be above 6x or liquidity declines.

The principal methodology used in this rating was Refining and Marketing published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277301. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Calumet Specialty Products Partners, L.P., headquartered in Indianapolis, Indiana, is an independent North America producer of specialty hydrocarbon products, such as lubricants, solvents and waxes, and fuel products. It is structured as a publicly traded Master Limited Partnership (MLP). Calumet operates three business segments: Specialty Products and Solutions, Montana/Renewables and Performance Brands.

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

James Wilkins
Vice President - Senior 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

No Related Data.
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