Approximately $1.5 billion of rated debt affected
New York, July 11, 2019 -- Moody's Investors Service (Moody's) upgraded the ratings of Calumet Specialty
Products Partners, L.P. (Calumet), including
the Corporate Family Rating (CFR) to B3 from Caa1, Probability of
Default Rating to B3-PD from Caa1-PD and the ratings on
the existing senior unsecured notes to Caa1 from Caa2. The Speculative
Grade Liquidity Rating was affirmed at SGL-2. The rating
outlook is stable.
"The upgrade to a B3 CFR reflects Moody's expectation that Calumet will
continue to generate positive free cash flow and improve its credit metrics,"
said James Wilkins, Moody's Vice President.
Upgrades:
..Issuer: Calumet Specialty Products Partners,
L.P.
.... Probability of Default Rating,
Upgraded to B3-PD from Caa1-PD
.... Corporate Family Rating, Upgraded
to B3 from Caa1
.... Senior Unsecured Notes, Upgraded
to Caa1 (LGD4) from Caa2 (LGD4)
Outlook Actions:
..Issuer: Calumet Specialty Products Partners,
L.P.
....Outlook, Remains Stable
Affirmations:
..Issuer: Calumet Specialty Products Partners,
L.P.
.... Speculative Grade Liquidity Rating,
Affirmed SGL-2
RATINGS RATIONALE
The upgrade to a B3 CFR reflects Moody's expectation that Calumet
will continue to improve the profitability of its operations, generate
positive annual free cash flow and further improve its credit metrics.
The company has been restructuring its operations through implementation
of self-help projects, divesting non-core assets,
and spending on opportunistic growth capital projects. It expects
to realize further benefits from its new ERP system and could see a boost
in profit margins from higher diesel crack spreads in 2020. It
generated positive free cash flow in the fourth quarter 2018 and year-to-date
in 2019, partly as a result of changes in its working capital management,
which should improve its ability to refinance notes maturing in April
2021 ($850 million balance as of May 10, 2019). The
company has reduced its leverage (5.3x as of March 31, 2019,
including Moody's analytical adjustments) by retiring debt ($400
million of notes in April 2018) and open market purchases of notes ($23
million of notes due 2021 purchased in 2019Q1) as well as continuing to
growing earnings. However, the leverage metrics will likely
remain above the 4.0x level targeted by management through 2019
as free cash flow generation may not allow the company to sufficiently
reduce debt.
Calumet's CFR reflects its modest scale, elevated leverage and improving
operating performance, but history of inconsistent free cash flow
generation. The company's debt maturity schedule is skewed
with $850 million maturing in April 2021 (56% of its $1.525
billion of outstanding notes as of May 10, 2019) and the balance
maturing in 2022 ($350 million) and 2023 ($325 million).
The company's Specialty Products segment generates the majority of earnings
(61% of 2018 segment EBITDA) and Fuel Products accounts for the
remaining EBITDA. Calumet is exposed to volatile raw material (crude
oil) costs, which it generally can pass on to customers of specialty
products (albeit with a lag), but refining profit margins remain
volatile, even after the company hedges its commodity price exposures
and has access to advantaged feedstocks. The company's seven facilities
have a combined throughput capacity of 136,300 barrels per day.
The Fuel Products business produces transportation fuels, that can
be more seasonal and cyclical than the Specialty Products earnings.
The company benefits from geographic diversity of operations, a
diverse customer base (no customer represents ten percent or more of revenues)
and its numerous specialty products (some of which are recognized brands)
offer exposure to diverse end markets.
The senior unsecured notes are rated Caa1, one notch below the B3
CFR, reflecting their lower priority claim on assets than borrowings
under the secured revolving credit facility. Calumet's balance
sheet debt includes the secured ABL revolving credit facility and three
unsecured notes issues totaling $1.525 billion as of May
10, 2019.
Calumet's SGL-2 Speculative Grade Liquidity rating reflects the
good liquidity profile, supported by availability under the undrawn
revolving $600 million ABL credit facility, operating cash
flow that should cover its capital expenditures and cash on hand ($153
million as of March 31, 2019). The company has inventory
financing agreements related to its two largest refineries (Great Falls
and Shreveport) that mature in June 2023. The asset based revolver
had a borrowing base of $342 million as of March 31, 2019,
and availability of $307 million, after accounting for outstanding
letters of credit. Moody's expects the company will continue to
generate positive free cash flow in 2019, if working capital needs
do not materially increase and it does not engage in new growth capital
projects. The company does not pay distributions to the MLP unitholders,
although distributions are not restricted. The next debt maturity
is the unsecured notes due April 2021 ($850 million as of May 10,
2019). An additional $350 million of notes are due in January
2022. The revolver has one springing financial covenant which provides
that only if availability under the facility falls below the sum of the
FILO loans plus the greater of: (i) 10% of the Borrowing
Base; and (ii) $35 million, the company is required
to maintain a Fixed Charge Coverage Ratio of at least 1.0 to 1.0
as of the end of each fiscal quarter.
The stable rating outlook reflects Moody's expectation the company
will continue to improve its earnings and lower its leverage, and
will refinance its notes due April 2021 well before the maturity despite
potentially challenging capital market conditions for energy companies.
The ratings could be upgraded if Calumet consistently generates positive
free cash, maintains retained cash flow to debt above 10%
and leverage (debt / EBITDA) below 4.0x, and refinances the
notes due 2022. The ratings could be downgraded if the company
does not refinance its notes due 2021 well before the maturity date,
it generates negative free cash flow, leverage is expected to be
above 6.0x or liquidity declines.
The principal methodology used in these ratings was Refining and Marketing
Industry published in November 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Calumet Specialty Products Partners, L.P., headquartered
in Indianapolis, Indiana, is an independent North America
producer of specialty hydrocarbon products, such as lubricants,
solvents and waxes, and fuel products. It is structured as
a publicly traded Master Limited Partnership (MLP). Calumet operates
two business segments: Specialty Products and Fuel Products.
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.
James Wilkins
Vice President - Senior Analyst
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