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Rating Action:

Moody's upgrades Calumet Specialty's CFR to B3; outlook stable

11 Jul 2019

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

No Related Data.
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