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Rating Action:

Moody's rates Delek US Holdings' term loan B1; Ba3 CFR

28 Feb 2018

New York, February 28, 2018 -- Moody's Investors Service (Moody's) assigned first time ratings to Delek US Holdings, Inc. (DK), including a Ba3 Corporate Family Rating (CFR), a Ba3-PD Probability of Default Rating (PDR), and a B1 rating on the senior secured term loan B. The outlook is stable.

The net proceeds from the term loan will be used to refinance existing debt. The ratings on Alon USA Partners, LP and its rated debt will be withdrawn after the debt is repaid.

"The refinancing of existing debt simplifies Delek's debt structure following the acquisitions of Alon USA Energy and Alon USA Partners," stated James Wilkins, Moody's Vice President Senior Analyst. "The financing will not increase leverage and Moody's expects Delek to maintain conservative financial policies as it grows its business."

Assignments:

..Issuer: Delek US Holdings, Inc.

.... Corporate Family Rating, Assigned Ba3

.... Probability of Default Rating, Assigned Ba3-PD

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

.... Speculative Grade Liquidity Rating, Assigned SGL-1

Outlook Actions:

..Issuer: Delek US Holdings, Inc.

....Outlook, Assigned Stable

RATINGS RATIONALE

DK's Ba3 CFR reflects low leverage and an elevated cash balance reflective 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. Delek's debt to EBITDA was 3.0x as of December 31, 2017, pro forma for the Alon acquisition and we expect it to improve towards 2.5 x in 2018. Delek's refining and marketing operations include four refineries of modest scale that are geographically focused and have a combined 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 RIN's 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).

The secured term loan is rated B1, 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 loan, but has a first lien on working capital and a second lien on fixed assets, whereas the term loan has 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.

Delek's SGL-1 Speculative Grade Liquidity rating reflects very good liquidity supported by elevated cash balances, about $850 million of unused borrowing capacity under its $1 billion ABL revolving credit facility due 2023 and positive free cash flow. The company has kept elevated cash balances ($932 million as of December 31, 2017) and has stated it expects it will continue to do so. The company had roughly $150 million drawn on its ABL revolving credit facility as of year-end 2017, pro forma for the refinancing, which leaves ample borrowing capacity to fund potential growth capital expenditures. The revolver has a minimum fixed charge coverage ratio of 1.0x, which is only tested if excess availability is less than the greater of 12.5% of the revolver commitment ($1 billion) and $125 million. Moody's does not expect the covenant to be tested through 2019. The only near-term large debt maturity is the $150 million of Alon convertible senior notes due on September 15, 2018, which will be repaid at maturity with existing cash balances. The company's liquidity benefits from a supply and offtake agreement covering three refineries with J. Aron that matures on April 30, 2020, and is cancellable. 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 offtake agreement totaled $436 million as of December 31, 2017.)

The stable outlook reflects Moody's expectation that refining margins will remain stable or improve in 2018-2019. The ratings could be upgraded if there is an increase in scale by adding refineries to its portfolio or expanding existing operations such that it benefits from larger scale operations (throughput capacity greater than 100mbpd) or improvement in refining margins such that all refineries produce free cash flow in trough market conditions and the company maintains retained cash flow to debt above 25%. The ratings could be downgraded if there is a decline in profitability of refining operations or retained cash flow to debt falls below 15%.

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.

Delek US Holdings, Inc. (NYSE: DK), headquartered in Brentwood, Tennessee, is an independent refining and wholesale marketing company with 302 mbpd of total throughput capacity at four refineries. Its retail segment is the largest licensee of 7-Eleven in the United States and operates approximately 300 convenience stores. Additionally, DK holds a 63.5% stake in midstream logistics company, Delek Logistics LP (DKL, B1 stable).

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.

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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