Standard & Poor's Ratings Services said on February 2 that it took several rating actions on companies in the refining industry following the completion of a sector review. Liquidity concerns and our expectations that industry conditions could remain weak for 2009 and possibly beyond were key factors behind the rating actions (listed below). We expect margins to remain thin and product demand weak.
Sunoco Inc. To BBB/Negative/A-3 From BBB/Stable/A-2
The negative outlook reflects our concerns that refining margins will remain weak in 2009 and possibly well beyond. Furthermore, Sunoco's limited ability to process disadvantaged crudes, its geographic concentration in the highly competitive PADD I region, and its significant near-term regulatory and required capital expenditures place the company at a relative disadvantage. Only partially offsetting these concerns are the company's growing and more stable coke and logistics business units, as well as its moderate debt. Despite the negative outlook on Sunoco, we affirmed the 'BBB' rating and kept the stable outlook on the company's partially owned subsidiary, Sunoco Logistics Partners L.P.
CITGO Petroleum Corporation To BB/Watch Neg/-- From BB/Negative/--
The CreditWatch placement reflects our concerns about CITGO's tight liquidity. Certain technical restrictions in the company's $450 million account receivable securitization program have significantly restricted availability and usage. The company is seeking approval to amend the facility, which would allow CITGO to considerably enhance its liquidity position. We expect the amendment to go through but, given the thin liquidity levels currently, any delay or outcomes contrary to our expectations could leave the company vulnerable to unexpected calls on liquidity. We could lower the rating by more than one notch if the amendment is unsuccessful or delayed further than expected. However, if the amendment is approved as proposed, we could affirm CITGO's current ratings and outlook.
United Refining Company To B/Negative/-- From B/Stable/--
The outlook revision reflects our expectation of weak financial performance and credit metrics for 2009 and possibly beyond. Interest expense coverage is likely to remain weak at 2x or lower, and adjusted debt leverage could continue to exceed 7x. Adequate liquidity provided primarily by its $130 million credit facility, which was near full availability as of January 12, 2009, supports the ratings.
Western Refining Inc. To B+/Negative/-- From B+/Watch Neg/--
The rating action reflects strong results in the second half of 2008 and our expectations for improved first-quarter results versus year-ago levels. Hence, Western should have an adequate covenant cushion as it continues to pursue debt reduction through asset sales. In particular, near-term compliance with its debt leverage covenant, 5x as of March 31 and 4.75x as of June 30, should be achievable. Nevertheless, the negative outlook reflects the potential for a downgrade if Western fails to deleverage, or if the cushion to its September 30 debt leverage covenant of 4.5x becomes thin.
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com.