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Rating Action:

Moody's rates Tesoro Logistics' proposed notes B1

12 Dec 2013

Approximately $250 million of debt securities affected

New York, December 12, 2013 -- Moody's Investors Service assigned a B1 rating to Tesoro Logistics LP's (TLLP) proposed $250 million senior unsecured notes due 2020. The notes are being co-issued by Tesoro Logistics Finance Crop. The Corporate Family Rating of Ba3 and other ratings of TLLP are unaffected, and the rating outlook is positive.

The proceeds from the proposed notes offering will be used to repay the $250 million of debt outstanding under TLLP's secured revolving credit facility. On December 6, 2013, TLLP financed the $585 million cash portion of its second Carson logistics asset drop down through $250 million in drawings under its revolving credit facility and cash on the balance sheet, which benefited from TLLP's November 19, 2013 equity offering for net proceeds of $310 million. The second Carson drop down is expected to generate about $60-$65 million of EBITDA in 2014, representing a total purchase price multiple of roughly 10-11x.

"With the closing of the second Carson drop down, Tesoro Logistics' size and scale continues to improve, with fee-based revenues supported by long-term contracts with Tesoro Corporation, " commented Gretchen French, Moody's Vice President. "However, Tesoro Logistics' Corporate Family Rating still remains restrained at Ba3 due to the company's lack of significant track record with its suite of assets. The company's success in integrating and operating the Carson assets over the 2014 time period should support positive rating action."

Issuer: Tesoro Logistics LP

Ratings Assigned:

....$250 Million Senior Unsecured Notes due in 2020, Rated B1 (LGD 4, 65%)

Moody's current ratings for Tesoro Logistics LP are:

....Corporate Family Rating of Ba3

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

....$550 Million Senior Unsecured Notes due in 2021, Rated B1 (LGD 4, 65%)

....$350 Million Senior Unsecured Notes due 2020, Rated B1 (LGD 4, 65%)

....Speculative Grade Liquidity rating of SGL-3

RATINGS RATIONALE

TLLP's B1 rated senior unsecured notes reflect both the overall probability of default of the company, to which Moody's assigns a Probability of Default Rating of Ba3-PD, and a loss given default of (LGD 4, 65%). The notes are rated one notch below the Ba3 Corporate Family Rating, reflecting the contractual subordination of the notes to TLLP's $575 million credit facility. The unsecured notes have upstream guarantees from substantially all of TLLP's subsidiaries.

On a standalone basis, Moody's views Tesoro Logistics' credit profile as more consistent with a B1 rating, reflecting its stable cash flows from long-term, fee-based contracts with minimum volume commitments and visible growth trajectory, but restrained by its small size, limited track record as both a MLP and with its portfolio of assets, and aggressive growth strategy and high distributions associated with its MLP structure. However, the Ba3 Corporate Family Rating reflects uplift from its strategic importance to its general partner, Tesoro Corporation (TSO, Ba1 stable), as the MLP will provide it with critical infrastructure and a coordinated growth strategy, and supportive contract structures. Additionally, TSO's support is reflected in its 34% common unit ownership stake, plus a 2% general partner stake, in Tesoro Logistics.

TLLP's SGL-3 rating reflects the expectation for adequate liquidity through 2014. Pro forma for the proposed bond issuance, the company will have an undrawn $575 million bank credit facility and cash balances of roughly $35 million. The credit facility is secured by substantially all of TLLP's assets, matures in December 2017 and includes covenants of net debt/EBITDA of no greater than 5x, secured debt/EBITDA of no greater than 3.5x, and EBITDA/interest of no less and 2.5x.

TLLLP's positive outlook reflects the company's materially increasing scale and asset diversity, with a continued high percentage of contracted, fee-based revenues from its parent company and general partner, TSO.

Tesoro Logistics' ratings could be upgraded if the company is able to increase in size and scale while maintaining reasonable leverage (EBITDA approaching $200 million and debt/EBITDA below 4.5x) and adequate distribution coverage. However, future rating action would consider the company's success in integrating the Carson drop downs.

TLLP's ratings could be downgraded if debt/EBITDA were to be sustained above 5x, which would most likely occur because of a leveraging acquisition, or if the company acquired a significant amount of new assets with a weak business risk profile. If TSO's credit quality were to materially decline, this would also pressure TLLP's ratings.

The principal methodology used in this rating was the Global Midstream Energy published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Tesoro Logistics LP is a master limited partnership headquartered in San Antonio, Texas.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Gretchen French
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Tesoro Logistics' proposed notes B1
No Related Data.
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