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Rating Action:

Moody's rates new Alon USA Energy, Inc.'s Term Loan B2

16 Mar 2012

Approximately $700 million in Term Loan B notes

New York, March 16, 2012 -- Moody's Investors Service affirmed Alon Energy USA, Inc.'s (ALJ) Corporate Family Rating (CFR) of B2 and assigned a B2 rating to ALJ's proposed offering of a $700 million of senior secured Term Loan due 2018. The rating outlook is stable. On close of this transaction and the anticipated retirement of the Alon Refining Krotz Springs, Inc. (KS) Notes, KS' CFR and secured note rating will be withdrawn.

RATINGS RATIONALE

"ALJ had a good 2011 from a cash flow generation standpoint but the results were highly skewed. Big Spring and Retailing performed well; California, Krotz Springs and the Asphalt segments performed poorly," said Harry Schroeder, Moody's Vice President. "The asset portfolio provides operational diversity, however, cash flow generating diversity and sustainability from those assets needs to be demonstrated as well as deleveraging."

ALJ's Corporate Family Rating (CFR) of B2 incorporates the result of a simplified capital structure with the extinguishment of the KS secured notes and ALJ's secured term loan that is replaced by a single $700 million secured term loan, a 50% sweep (contractually effecting a mechanism to reduce absolute levels of debt) and the property, plant and equipment of all three refineries and the asphalt terminals supporting ALJ's debt, the geographic diversity of the refineries and the stable retail operations. It also incorporates the high volatility and low level of cash flow in relation to its debt and reliance on the mid-continent market, the supply and off-take agreements that understate core working capital and financing requirements, the unrestricted nature of the retailing operation and significant reliance on asphalt for profitability in the California market.

We have assigned a stable outlook. While concrete favorable operating trends at Big Spring and Retail are laudable, we wish to see concrete results that demonstrate cash flow diversity and sustainability has taken root.

To achieve a rating upgrade ALJ must demonstrate both sustained positive and balanced profitability levels in the Krotz Springs and California segments and continued debt reduction to the $850 million range, including Moody's standard adjustments. It also assumes continued EBITDA greater than $35 million in the Retailing segment and a meaningful positive contribution from the Asphalt segment.

A downgrade could occur if debt is not reduced in an expeditious and meaningful fashion. We view the prospects for debt reduction and management intent to do so as reasonable and with limited required calls on cash flow a reduction to the $1.1 billion level by 12/31/ 2012 and $950 million level by 12/31/2013, including Moody's standard adjustments, are realistic benchmarks. This assumes no material erosion in mid-continent refining economics that would cripple ALJ's ability to generate sufficient cash flow to reasonably meet these targets.

We have assigned a Speculative Grade Liquidity Rating (SLG) of 3 to ALJ. ALJ's liquidity profile is expected to be sufficient to cover cash needs through mid-2013. At December 31, 2011, ALJ had $157 million in cash and a $240 million revolving credit facility (with $5 million available) at Alon USA LP expiring in 2016. These sources, in combination with the expected performance of Big Spring and Retailing and the expected return to profitability of Krotz Springs should fund anticipated maintenance and turnaround capital expenditures and a meaningful reduction in debt. ALJ has also executed supply and off-take agreements with J. Aron for all their refineries. We believe there is little concern these agreements will be canceled by either party in the near term but if they were, substantial inventory would need to be financed by ALJ, in a reasonably short and likely unpropitious time. This arrangement implies that traditional sources of capital such as bank revolving credit facilities and trade credit would be readily available to finance the core assets as they move back on balance sheet. ALJ's SGL-3 Speculative Grade Liquidity Rating reflects an adequate liquidity position, largely from accumulated cash on the balance sheet and projected 2012 cash flow. After the issuance of this term loan, it will have availability under its revolving credit facility of about $30 million building to an estimated $150-$175 million by 12/31/2012.

The new Notes are rated B2 equal to its CFR. The B2 senior term loan rating reflects both the overall probability of default rating (PDR) of B2 and a loss given default of LGD4 - 52% in accordance with Moody's Loss Given Default (LGD) Methodology.

The principal methodology used in rating Along was the Global Refining and Marketing Rating Industry Methodology published in December 2009. 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.

Alon Energy USA, Inc., is headquartered in Dallas, Texas and is engaged in the refining and marketing of petroleum products and asphalt and retail distribution.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Harold Schroeder
Vice President - Senior Analyst
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 new Alon USA Energy, Inc.'s Term Loan B2
No Related Data.
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