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Rating Action:

Moody's confirms NuStar's Ba1 CFR; outlook negative

19 May 2017

Approximately $1.8 billion of rated debt affected

New York, May 19, 2017 -- Moody's Investors Service (Moody's) confirmed the ratings of NuStar Energy L.P. (NuStar) and NuStar Logistics L.P. (NuStar Logistics) including the Ba1 Corporate Family Rating (CFR) and the Ba1 senior unsecured notes ratings. Moody's also affirmed NuStar's SGL-3 Speculative Grade Liquidity (SGL) rating. The rating outlook is negative.

This action resolves the review for downgrade that was initiated on 12 April 2017 following NuStar's announcement that it would acquire Navigator Energy Services, LLC (Navigator).

"The confirmation of the Ba1 rating reflects the potential benefits of increased business and basin diversification with entry into the Permian Basin, despite higher leverage and the risk inherent in ramping up the Navigator assets," commented RJ Cruz, Moody's Vice President. "Leverage is high and coverage metrics are weak this year, but should improve in 2018 as EBITDA contribution is expected to increase with the new assets transporting rising volumes out of the Permian."

Ratings Confirmed:

Issuer: NuStar Energy L.P.

Corporate Family Rating, Confirmed at Ba1

Probability of Default Rating, Confirmed at Ba1-PD

Preferred Stock (Local Currency), Confirmed at Ba3 (LGD6)

Issuer: NuStar Logistics L.P.

Senior Unsecured Regular Bond/Debenture, Confirmed at Ba1 (LGD3)

Subordinate Regular Bond/Debenture, Confirmed at Ba2 (LGD6)

Rating Affirmed:

Issuer: NuStar Energy L.P.

Speculative Grade Liquidity Rating, Affirmed at SGL-3

Outlook Actions:

Issuer: NuStar Energy L.P.

Outlook, Changed to Negative from Ratings Under Review

Issuer: NuStar Logistics L.P.

Outlook, Changed to Negative from Ratings Under Review

RATINGS RATIONALE

NuStar closed its acquisition of Navigator Energy Services, LLC (Navigator, unrated) for $1.475 billion in May 2017. The purchase was funded with 41% common equity, 24% preferred equity and 35% unsecured bonds. Navigator has oil gathering, transportation, and storage operations in the Permian Basin. While this transaction will give NuStar entry into one of the most prolific basins in the United States and was funded with a substantial amount of equity, risks remain with respect to lower oil prices, reduced customer drilling activity and lower than anticipated ramp up of production volumes.

NuStar's Ba1 CFR is supported by the breadth of the company's refined product and crude oil pipeline transportation infrastructure, storage and terminal assets. Its EBITDA is over 95% fee-based, with EBITDA in the Eagle Ford Shale supported by long-term contracts with minimum volume commitments. The acquired Navigator assets in the Permian Basin are additionally supported by long-term fee-based contracts, as well as acreage dedications, and will provide NuStar additional opportunities for organic growth. However, Moody's is also projecting total leverage to be almost 6x and coverage ratio to be under 1x in 2017 before improving to 5x and over 1x, respectively in 2018. Moody's projections incorporate improving volumes in the Eagle Ford but there is considerable uncertainty around the timing and magnitude of EBITDA contribution from the Navigator assets. In addition, the company will be relying heavily on its revolver as well as support from the equity and debt markets to fund its outspend in the next two years.

NuStar's SGL-3 rating reflects adequate liquidity into mid-2018. NuStar's liquidity profile is constrained by its high payout MLP model, heavy utilization of its revolver and projected moderate covenant compliance cushion. NuStar's principal source of liquidity is a $1.5 billion revolving credit facility due October 2019, with $717 million availability as of 31 March 2017 (after accounting for drawings of $775 million and letters of credit of $8 million). The credit facility is unsecured, but drawings are subject to a material adverse change clause. The credit facility has one financial covenant: debt/EBITDA of no greater than 5.0x (increasing to 5.5x for two quarters after an acquisition), and the calculation includes material project adjustments to EBITDA for projects under construction, and does not include NuStar's $403 million in subordinated notes and certain other items. NuStar was in compliance at 31 March 2017, though compliance cushion will be limited as the revolver is needed to fund NuStar's increased capital plans through 2018. Supporting NuStar's liquidity profile is an unsecured capital structure and the corresponding flexibility to sell assets to raise cash. Its next debt maturity is the $350 million senior notes due in April 2018.

Under Moody's Loss Given Default methodology, NuStar Logistics' unsecured notes are rated Ba1, reflecting a capital structure that is comprised of almost all unsecured debt. NuStar Logistics' various unsecured bonds and revolving credit facility are unsecured and pari passu. NuStar Logistics' subordinated notes are rated Ba2, reflecting their subordination to NuStar Logistics' senior unsecured debt. NuStar's preferred units are rated Ba3, two notches below the Ba1 CFR, reflecting their contractual and structural subordination to NuStar Logistics' debt obligations.

The negative outlook reflects risks of achieving meaningfully higher EBITDA in 2018 to improve the weak leverage and coverage metrics.

Ratings could be downgraded if Debt/EBITDA does not steadily decline as forecasted to a level at or below 5x by 2018 with distribution coverage rising above 1x in 2018. While an upgrade is not likely in the near-term, Debt/EBITDA approaching 4x on a sustainable basis and distribution coverage maintained above 1.1x could result in an upgrade.

The principal methodology used in these ratings was Midstream Energy published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

NuStar Energy L.P. is a publicly traded energy master limited partnership headquartered in San Antonio, Texas.

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.

RJ Cruz
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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