New York, November 09, 2020 -- Moody's Investors Service ("Moody's") assigned
a B1 rating to Sunoco LP's (SUN) proposed offering of senior unsecured
notes due 2029. The Ba3 Corporate Family Rating (CFR), the
Ba3-PD Probability of Default Rating (PDR), SGL-3
Speculative Grade Liquidity (SGL) rating and stable outlook are not affected
by this action. The notes will be fully and unconditionally guaranteed
by all of SUN's material domestic subsidiaries and are co-issued
by Sunoco Finance Corp.
Proceeds of the proposed notes offering will be used to refinance a portion
of upcoming near-term debt maturities.
Assignments:
..Issuer: Sunoco LP
....Senior Unsecured Notes, Assigned
B1 (LGD4)
RATINGS RATIONALE
The proposed senior notes issue is unsecured and guaranteed by substantially
all of SUN's domestic subsidiaries. The notes are rated B1,
or one notch below the Ba3 CFR, reflective of their junior position
relative to the priority claim of its $1.5 billion secured
revolving credit facility.
As one of the largest distributors of motor fuels in the US, SUN
benefits from the strength of the Sunoco retail brand and the geographic
reach and revenue stability accruing from the wholesale distribution of
motor fuel which has become its dominant business. This followed
the January 2018 sale of the majority of its company-operated retail
fuel outlets for $3.2 billion to 7-Eleven,
Inc. (Baa1 review down). Earnings and cash flow derived
from wholesale motor fuels distribution, while generating lower
margins, are less volatile than that derived from the retail sales
of motor fuels and merchandise. SUN generates a fixed margin,
which it expects to average 9.5-10.5 cents per gallon
over the medium term on a significant portion of its gallons distributed
and is no longer exposed to the volatility of retail fuel and merchandise
margins associated with its retail businesses. While third quarter
2020 motor fuels volumes sold were down 12% to 1.9 billion
gallons compared to 2019's third quarter due to the pandemic-related
downturn in transportation, they were up 22% sequentially
on a partial recovery in demand. The gross profit margin on third
quarter gallons sold averaged 12.1-cents compared to 11.6-cents
in the year-ago quarter, and 13.5-cents in
2020's second quarter. Largely as a result of margin expansion
and somewhat improved second-half demand conditions, SUN
expects full-year 2020 EBITDA to be at or above $740 million,
up at least 11% over 2019's $665 million.
SUN distributed 8.2 billion gallons of wholesale fuel volumes in
2019. Wholesale fuels distribution requires materially lower capital
expenditures than retail; prior to its sale of the retail sites,
capital spending on maintenance and facility upgrading had consumed a
disproportionate amount of cash from operations. Reflecting the
uncertainty of 2020's operating environment, SUN has cut 2020's
projected growth capital spending by 42% to $75 million.
Moody's believes that SUN will look to grow to gain additional size through
acquisitions and economies of scale. Acquisitions could potentially
extend upstream into logistics assets. Notwithstanding growth aspirations,
Moody's expects that SUN will adhere to its recently updated publicly
stated long term leverage target of around 4x (about 4.5x including
Moody's standard adjustments), about where it operated in 2020's
third quarter. Distribution coverage at 2020's third quarter
was 1.6x; comfortably in excess of the company's 1.2x
publicly stated targeted level.
The rapid spread of the coronavirus outbreak, a weak global economic
outlook, low oil and natural gas prices, and high asset price
volatility have created an unprecedented credit shock across a range of
sectors and regions. We regard the coronavirus outbreak as a social
risk under our ESG framework, given the substantial implications
for public health and safety. SUN's exposure to volumetric risk
in the wholesale distribution of motor fuels leaves it vulnerable to shifts
in market demand and sentiment in these unprecedented operating conditions.
Environmental considerations also have a growing impact on Moody's credit
analysis for midstream energy companies, indirectly related to potential
carbon dioxide regulations. A strong financial position and low
financial leverage are important characteristics for managing these environmental
and social risks.
Moody's regards SUN as having adequate liquidity as indicated by its SGL-3
Speculative Grade Liquidity rating, principally a function of its
$1.5 billion secured revolving credit facility. At
September 30, $87 million was outstanding under SUN's
revolver, down from $158 million at June 30. The revolving
credit facility has a July 2023 scheduled maturity date. SUN's
next upcoming debt maturity is its $1.0 billion 4.875%
notes issue due January 2023. Proceeds from the proposed notes
issue will be used to redeem a portion of these notes.
SUN's outlook is stable reflecting Moody's expectation of the stability
in earnings and cash flow associated with the company's wholesale
motor fuels distribution operations.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be upgraded if SUN's debt/EBITDA consistently remains under
4.5x and interest coverage exceeds 4x. Ratings could be
downgraded should leverage increase above 5.5x or should distribution
coverage fall below 1x.
Sunoco LP is a master limited partnership (MLP) that distributes motor
fuels on a wholesale basis to convenience stores, independent dealers,
commercial customers and distributors situated in over 30 states.
Its general partner is Energy Transfer Operating, L.P.
(Baa3 negative), who owns 100% of SUN's Incentive Distribution
Rights (IDRs) and 34.4% of SUN's common units. ETO
is a wholly-owned subsidiary of Energy Transfer LP (not rated).
Sunoco LP is headquartered in Dallas, Texas.
The principal methodology used in these ratings was Midstream Energy published
in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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
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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
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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.
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
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These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
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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
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Andrew Brooks
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.
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653