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Rating Action:

Moody's changes HollyFrontier's outlook to stable from negative

19 Jun 2018

$1 billion of rated debt affected

New York, June 19, 2018 -- Moody's Investors Service, ("Moody's") changed HollyFrontier Corp.'s (HFC) outlook to stable from negative and affirmed its Baa3 senior unsecured and long-term issuer ratings.

The change in the rating outlook reflects improving operating performance and credits metrics driven by better crack spreads versus the low levels witnessed in 2016-17. More recently, the company is benefitting from favorable crude procurement driven by the wider than usual differentials from various North American oil producing regions.

"HollyFrontier's consolidated leverage will continue improving in 2018-19 because of the increased EBITDA contribution from its refineries which are capable of distilling a variety of advantaged crudes and will benefit from robust demand fundamentals domestically," said Arvinder Saluja, Moody's Vice President.

Outlook Actions:

..Issuer: HollyFrontier Corp.

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: HollyFrontier Corp.

.... Issuer Rating, Affirmed Baa3

....Senior Unsecured Notes, Affirmed Baa3

....Senior Unsecured Shelf, Affirmed (P)Baa3

RATINGS RATIONALE

HFC's Baa3 senior unsecured rating reflects the company's long track record of conservative financial policies with historically low leverage, financial performance that has been one of the strongest in the refining industry and its complementary logistics capability. The rating is also supported by the strategic location of HFC's refining assets, which allows for access to advantaged crudes in the current commodity price environment and an ability to process a high proportion of heavy crude. Its lubes business, based in Canada, was acquired in early 2017 and produces the higher margin Group II+ and Group III base oils, and white oil. In addition, it enhances HFC's scale, and business and geographic diversity modestly, but is not sizeable enough to move the ratings up and its location differs from HFC's refining asset footprint.

HFC's rating is restrained by its limited scale. The rating considers the challenges facing the refining industry over the longer term, including potential changes in market dynamics, and risk associated with regulatory capital expenditures that may not produce additional cash flow. We expect HFC to maintain supportive consolidated leverage metrics (including Holly Energy Partners, L.P., or HEP) over the cycle despite potential EBITDA volatility, manage its share buybacks in a conservative and measured manner, and use its balance sheet cash of over $750 million prudently.

We expect HFC to have excellent liquidity with a March 31, 2018 cash balance of $773 million (standalone) and a $1.35 billion undrawn senior unsecured revolving credit facility (with $2.3 million of letters of credit outstanding). We expect that HFC will manage its non-discretionary capital spending and share repurchases from internally generated cash flow. In May 2015, HFC's Board approved a $1 billion share repurchase program. At March 31, HFC had $152 million remaining under its share repurchase authorization. HFC's revolver matures in February 2022, and we anticipate it will remain undrawn absent any further acquisitions. HFC's nearest debt maturity is for its revolver in 2022.

The stable outlook reflects Moody's expectation of supportive credit metrics as the industry conditions and crack spreads remain favorable over 2018-19 and as HFC continues to make progress in integrating its lubes business.

An upgrade for HFC is unlikely in the near term due to HFC's modest scale. If the company grows through acquisitions and meaningfully increases its asset diversity, while maintaining its conservative financial profile, then an upgrade may be considered. A downgrade could result if HFC were to experience material operational issues or if its strategy and financial policies were to become significantly less conservative.

Headquartered in Dallas, Texas, HollyFrontier Corporation is an independent US refining company with five refineries and 457,000 bpd of total throughput capacity.

The principal methodology used in these ratings was Refining and Marketing Industry published in November 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

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.

Arvinder Saluja, CFA
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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