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Rating Action:

Moody's downgrades Deer Park Refining LP's debt to Baa1; outlook negative

14 Dec 2017

New York, December 14, 2017 -- Moody's Investors Service (Moody's) downgraded to Baa1 from A3 the long-term ratings assigned to Deer Park Refining Limited Partnership's (Deer Park) guaranteed industrial revenue bonds and affirmed the P-2 short-term ratings on the bonds and the company's commercial paper (CP) program. The outlook on the ratings remains negative.

Downgrades:

..Issuer: Harris County Industrial Dev Corp, TX

....Senior Unsecured Revenue Bonds, Downgraded to Baa1 from A3

Affirmations:

..Issuer: Deer Park Refining Limited Partnership

....Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Harris County Industrial Dev Corp, TX

....Senior Unsecured Revenue Bonds, Affirmed P-2

Outlook Actions:

..Issuer: Deer Park Refining Limited Partnership

....Outlook is Negative

RATINGS RATIONALE

Deer Park is a joint venture owned 50% by Royal Dutch Shell (Shell, Aa2 stable) via its wholly owned subsidiary Shell Oil Company (SOC, Aa3 stable) and 50% by Mexican national oil company PEMEX (Baa3 negative) through its wholly-owned subsidiary P.M.I Norteamerica (PMI).

The downgrade of long term ratings on Deer Park's industrial revenue bonds reflects its developing standalone profile and weaker operating performance characterized by reduced reliability of the single asset refinery. The industrial revenue bonds benefit from the guarantee of Deer Park, but are not guaranteed by the joint venture partners.

The Baa1 long term debt rating reflects the refining joint venture's strategic importance to Shell and PEMEX, and factors in a multi-notch uplift, based on Deer Park's status as one of the leading heavy crude refineries within Shell's global refining portfolio and integration into its chemical operations. The rating is also supported by Deer Park's low debt level, consisting partly of subordinated loans extended by Shell and PEMEX under the joint venture arrangements. The rating reflects a number of specific structural credit enhancements, including substantial committed liquidity support. While credit uplift of Deer Park's ratings is primarily linked to Shell, we also take into consideration the Baa3/negative rating of its other ultimate owner, PEMEX. The Mexican company supplies heavy crude to Deer Park and has historically imported a portion of the partnership's gasoline production to meet growing product shortfalls in Mexico.

The affirmation of Deer Park's short term P-2 ratings reflects the partners' continuous support to the joint venture, which includes provision of substantial liquidity and funding facilities that safeguard Deer Park's strong liquidity position. Its liquidity profile is directly supported by availability of funds under a $490 million syndicated revolving credit facility due in 2022 and under $350 million subordinated loan facility with its partners due in January 2019. The bank revolver had been used to backstop Deer Park's commercial paper, however, in 2017 Deer Park opted to formally exit the commercial paper market, utilizing its revolver and partner loans as necessary to fund short-term working capital requirements. SOC and PMI are also committed to provide partner liquidity support in the total amount of $150 million.

The negative outlook reflects Moody's concern with Deer Park's uneven operating track record, as well as the expectation that the company will need to make capital spending to improve asset reliability.

Continuous reliability issues at Deer Park's single asset or a significant leveraging prompted by major capital projects or sustained reduction in earnings, with debt/EBITDA above 2.5x, could lead to the downgrade of Deer Park ratings. A downgrade of Shell or SOC ratings or a change in the structural set up of the Deer Park joint venture, amounting to a lower level of support from Shell and SOC, could also lead to the downgrade of Deer Park ratings.

Deer Park debt ratings are unlikely to be upgraded in the foreseeable future, given the company's single asset profile. However, Deer Park could be upgraded if it meaningfully improves its refinery asset or business diversification without an increase in debt.

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.

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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.

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Elena Nadtotchi
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

No Related Data.
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