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Rating Action:

Moody's reviews NuStar's ratings for downgrade following Navigator acquisition

Global Credit Research - 12 Apr 2017

Approximately $1.8 billion of rated debt affected

New York, April 12, 2017 -- Moody's Investors Service (Moody's) placed the ratings of NuStar Energy L.P. (NuStar) and NuStar Logistics L.P. (NuStar Logistics) under review for downgrade, including the Ba1 Corporate Family Rating (CFR), the Ba1-PD Probability of Default Rating (PDR), Ba1 senior unsecured notes ratings, Ba2 subordinate notes ratings, and the Ba3 preferred stock rating. NuStar's SGL-3 Speculative Grade Liquidity Rating is not affected by this action.

RATINGS RATIONALE

These actions follow NuStar's announced acquisition of Navigator Energy Services, LLC (Navigator, unrated) for $1.475 billion likely using a combination of debt and equity. Navigator has oil gathering, transportation, and storage operations in the Permian Basin. The acquisition is expected close in May 2017.

"Even though the Navigator transaction will give NuStar entry into the growing Permian Basin where producer activity continues to increase along with volumes, the increased debt and equity burden will unfavorably impact the already elevated leverage and reduce distribution coverage," said RJ Cruz, Moody's Vice President.

On Review for Downgrade:

Issuer: NuStar Energy L.P.

Corporate Family Rating, Placed on Review for Downgrade, currently Ba1

Probability of Default Rating, Placed on Review for Downgrade, currently Ba1-PD

Preferred Stock (Local Currency), Placed on Review for Downgrade, currently Ba3 (LGD6)

Issuer: NuStar Logistics L.P.

Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba1 (LGD3)

Subordinate Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba2 (LGD6)

Outlook Actions:

Issuer: NuStar Energy L.P.

Outlook, Changed to Ratings Under Review from Stable

Issuer: NuStar Logistics L.P.

Outlook, Changed to Ratings Under Review from Stable

The review will focus on the final financing structure for the acquisition and the magnitude and timing of the EBITDA contribution from the acquired Navigator assets given the high multiple (based on the acquisition's current estimated EBITDA) being paid. The review will consider the resulting credit metrics for the company following the transaction as they were stretched even prior to this transaction. The acquisition entails inherent execution risk and competition from existing and future systems in an area where NuStar does not operate currently, The review is likely to be concluded by the end of May when the transaction closes.

The ratings could be downgraded if Debt/EBITDA is expected to remain above 5.5x or distribution coverage falls below 1x for a sustained period. On the other hand, while an upgrade is not likely in the near-term, Debt/EBITDA approaching 4.5x on a sustainable basis and distribution coverage maintained above 1.1x could result in an upgrade.

NuStar's credit profile is supported by the breadth of the company's refined product and crude oil pipeline transportation infrastructure, storage and terminal assets. NuStar's EBITDA is over 95% fee-based, with EBITDA in the Eagle Ford Shale supported by long-term contracts with minimum volume commitments. However, the company is confronted with rising financial leverage, as EBITDA has declined, with excess Eagle Ford Shale volumes declining to minimum contracted levels, and the company relying on debt to fund its capital investments. NuStar has needed to issue additional equity or equity-like securities in order to improve financial leverage and to maintain adequate liquidity. In addition, credit accretion is limited by NuStar's master limited partnership (MLP) corporate finance model, which entails high distribution payouts.

The principal methodology used in these ratings was Global Midstream Energy published in December 2010. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

NuStar Energy L.P. is a publicly traded energy master limited partnership.

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.

RJ Cruz
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

No Related Data.
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