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Related Issuers
Rating Action:

Moody's rates Delek US Holdings' incremental term loan B1

07 May 2020

New York, May 07, 2020 -- Moody's Investors Service (Moody's) assigned a B1 rating to Delek US Holdings, Inc.'s (Delek) proposed $200 million incremental term loan due 2025. The net proceeds from the term loan issuance will be used for general corporate purposes. Delek's existing ratings, including the Ba3 Corporate Family Rating (CFR) and B1 rating on the existing senior secured term loan B, as well as the stable outlook are unchanged.

"The incremental term loan will supplement Delek's liquidity and support its rating in this period of weak and volatile refining margins," stated James Wilkins, Moody's Vice President - Senior Analyst.

Assignments:

..Issuer: Delek US Holdings, Inc.

....Senior Secured Term Loan, Assigned B1 (LGD4)

RATINGS RATIONALE

The proposed incremental secured term loan, which is pari passu with the existing term loans, is rated B1. This is one notch below the Ba3 CFR, reflecting the priority claim of the $1 billion revolving credit facility, which shares the same collateral as the term loans, but has a first lien on working capital and a second lien on fixed assets, whereas the term loans have a first lien priority claim on fixed assets and a second lien on working capital. Moody's views the B1 rating assigned as more appropriate than the Ba3 rating indicated by Moody's Loss Given Default Methodology given the inherent volatility of the company's trade payables and lack of material other debt outstanding that is subordinated to the term loan.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil and refined products 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 one of the sectors significantly affected by the shock given its sensitivity to demand as well as oil and refined products prices. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Delek's Ba3 CFR reflects its moderate leverage and a large cash balance which is indicative of its conservative financial policies and very good liquidity that can support it through periods of volatile refining industry profit margins and potentially high RINs expenses. Its crack spreads have come under severe pressure in 2020 as a result of the deteriorating economic situation brought on by the coronavirus pandemic that has generally decreased refined products demand in the US. Additionally, the drop in crude oil prices has raised its working capital requirements, but not sufficiently to impair its very good liquidity.

Delek's refining and marketing operations include four refineries of modest scale that are geographically focused and have a combined crude oil throughput capacity of 302 thousand barrels per day (mbpd) (all four refineries can be operated at less than 75 mbpd allowing them to apply for waivers of RINs requirements). The refineries are positioned in Texas, Louisiana and Arkansas where they can benefit from both growing Permian crude oil production and other locally-sourced crudes that are purchased at a discount to WTI Cushing prices. The company also benefits from more stable earnings generated by retail gas station and midstream operations, through its ownership interests in Delek Logistics Partners, LP (B1 stable). Delek's debt to EBITDA was 3.8x as of December 31, 2019.

Delek's SGL-1 Speculative Grade Liquidity rating reflects very good liquidity supported by a large cash balance, $0.66 billion borrowing capacity under its $1 billion ABL revolving credit facility due 2023 and positive free cash flow generation. The incremental term loan will add almost $200 million to its liquidity. The company has kept elevated cash balances ($955 million as of December 31, 2019) and has stated it expects it will continue to do so. The company had roughly $30 million drawn on its ABL revolving credit facility and outstanding letters of credit totaling $310 million as of year-end 2019, which left $660 million of borrowing capacity to fund potential growth capital expenditures and working capital needs. (It had unused borrowing capacity totaling $0.92 billion under the two revolving credit facilities at Delek and Delek Logistics Partners.) The Delek revolver has a minimum fixed charge coverage ratio of 1.0x, which is only tested if excess availability is less than the greater of 10% of the revolver borrowing base (capped at $1 billion) and $90 million. Moody's does not expect the covenant to be tested through mid-2021. The company's liquidity benefits from supply and off-take agreements covering three refineries with J. Aron that mature on December 30, 2022. Should Delek or J. Aron elect to terminate the agreement, Delek would have to invest a substantial amount in working capital. (The obligation under the supply and off-take agreements totaled $477 million as of December 31, 2019.)

The stable outlook reflects Moody's expectation that Delek will maintain at least adequate liquidity through 2021, even as refining margins are under pressure.

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

The ratings could be downgraded if profitability of refining operations declines or retained cash flow to debt remains below 15%. The ratings could be upgraded if retained cash flow to debt is sustainable above 25%, refining margins improve such that all refineries produce free cash flow in trough market conditions and the company increases scale by adding refineries to its portfolio or expanding existing operations such that it benefits from larger scale operations (refineries with throughput capacity greater than 100 mbpd).

The principal methodology used in this rating 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.

Delek US Holdings, Inc. (NYSE: DK), headquartered in Brentwood, Tennessee, is an independent refining and wholesale marketing company with 302 mbpd of total crude oil throughput capacity at four refineries with an average Nelson Complexity of 9.5, midstream assets and retail operations.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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.

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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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