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Rating Action:

Moody's rates NuStar's notes Ba2 and changes outlook to stable

16 May 2019

New York, May 16, 2019 -- Moody's Investors Service ("Moody's") has affirmed the ratings of NuStar Energy L.P. (NuStar) and NuStar Logistics L.P. (NuStar Logistics), including Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default rating, SGL-3 Speculative Grade liquidity Rating and Ba2 ratings of senior unsecured notes. Moody's assigned Ba2 ratings to NuStar Logistics's proposed senior unsecured notes due 2026. The ratings of NuStar Logistic's subordinated notes and the ratings of preferred units issued at NuStar Energy L.P. were affirmed at B1. The rating outlook is changed to stable from negative.

"NuStar is taking steps to maximize self-funding of its new projects. The agreed $250 million divestment of noncore terminal facilities will help funding the company's significant capital expenditures in 2019 and should allow NuStar to maintain its recent improvement in leverage. As the company continues to invest, it will continue to depend on its $1.4 billion 2020 revolver, as well as support from the equity and debt markets, to fund its cash flow outspend and distributions in the next two years," said Elena Nadtotchi, Moody's Vice President.

Assignments:

..Issuer: NuStar Logistics L.P.

....Gtd. Senior Unsecured Notes, Assigned Ba2 (LGD3)

Outlook Actions:

..Issuer: NuStar Energy L.P.

....Outlook, Changed To Stable From Negative

..Issuer: NuStar Logistics L.P.

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: NuStar Energy L.P.

.... Probability of Default Rating, Affirmed Ba2-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

.... Corporate Family Rating, Affirmed Ba2

....Pref. Stock Preferred Stock, Affirmed B1 (LGD6)

..Issuer: NuStar Logistics L.P.

....Subordinate Notes, Affirmed B1 (LGD6)

....Senior Unsecured Notes, Affirmed Ba2 (LGD3)

RATINGS RATIONALE

The change of the outlook to stable recognizes the company's successful efforts to decrease its financial leverage, with growth funding to be met in part through the agreed upon divestment of noncore assets. The stable outlook reflects Moody's expectation that the company will be able to maintain its improved leverage profile with debt/EBITDA below 5x and that the company will renew its revolving credit facility under substantially similar terms and in a timely manner.

NuStar's Ba2 CFR reflects the company's improving leverage with debt/ EBITDA at 4.7x at December 31, 2018 and our expectation that negative free cash flow generation, after significant growth capital spending and distributions, will keep leverage flat in 2019. With preferred instruments accounting for 21% of the capital structure, NuStar manages an additional layer of cash requirements, adding to its distributions, that contribute to our expectation of negative free cash flow in 2019 and 2020.

NuStar is making significant capital spending to support growth. Most of the planned $500 - $550 million in capital investments will be directed to complete the development of the Permian Crude System and extend complementary Corpus Christi export oil terminal facilities, as well as to extend the Northern Mexico pipeline infrastructure in 2019, to benefit from growing exports of refining products to Mexico. We expect that these investments, the majority backed by contracts, will add materially to EBITDA in 2020 and allow NuStar to maintain its improved leverage metrics going forward.

NuStar's liquidity profile is constrained by still significant negative free cash flow generation, that we estimate at $440 million in 2019. Its SGL-3 liquidity rating anticipates that the company will continue to proactively manage its refinancing needs in 2019 and in 2020. NuStar's principal source of liquidity is its committed $1.4 billion revolving credit facility that matures in October 2020. Mody's expects the company to remain in compliance with its covenants, however, cushion could tighten for the interest coverage covenant given the inclusion of preferred distribution payments in the calculation. At year end 2018, NuStar reported $655 million available for borrowing under the facility, before the recently announced $250 million divestment. The credit facility is unsecured, but drawings are subject to a material adverse change clause. The credit facility has two financial covenants (debt/EBITDA of no greater than 5.0x starting in the first quartet 2019 and EBITDA/ Interest of at least 1.75x). NuStar reported that it was in compliance with the financial covenants at December 31, 2018. Supporting NuStar's liquidity profile is an unsecured capital structure and the corresponding flexibility to sell assets to raise cash. NuStar's next significant maturity will be $450 million 4.80% senior notes, as well as the revolver facility in 2020.

The Ba2 rating may be upgraded if the company delivers on the growth potential of its Permian Crude System acquisition and lays the foundation of the financial framework which will allow it to maintain leverage sustainably below 4.5x debt/EBITDA, while pursuing further growth opportunities and maintaining sound liquidity. Deterioration in leverage, with debt/EBITDA exceeding 5.5x, and weaker liquidity may lead to the downgrade of the rating.

NuStar Logistics' unsecured notes are rated Ba2, at the level of the Ba2 CFR, reflecting a debt capital structure that is comprised of almost all unsecured debt. NuStar Logistics' various unsecured bonds and its 2020 revolving credit facility are unsecured and pari passu. NuStar Logistics' subordinated notes and preferred units are rated B1, two notches below the Ba2 CFR, reflecting their respective contractual and structural subordination to NuStar Logistics' debt obligations. If the revolver were to become secured or secured debt was added to the capital structure then the senior unsecured notes would likely be downgraded.

The principal methodology used in these ratings was Midstream Energy published in December 2018. 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.

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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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