Delek Logistics Partners L.P. Rating Raised To #BB-# From #B+#; Debt Ratings Outlook Stable

Stocks and Financial Services Press Releases Tuesday March 13, 2018 10:08
NEW YORK--13 Mar--S&P Global Ratings

NEW YORK (S&P Global Ratings) March 12, 2018--S&P Global Ratings today raised its corporate credit rating on master limited partnership Delek Logistics Partners L.P. to 'BB-' from 'B+'. The outlook is stable. The 'b' stand-alone credit profile (SACP) on the partnership is unchanged. We view the partnership to be strategically important to its ultimate parent and controlling owner of its GP, Delek US Holdings Inc.

At the same time, we raised our senior unsecured issue-level rating to 'B+'. The '5' recovery rating to the partnership's senior unsecured notes indicates our view that lenders can expect modest (10%-30%; rounded estimate: 10%) recovery in the event of a payment default. We also raised our senior secured issue-level rating on the partnership's $700 million revolving credit facility to 'BB+' from 'BB'. The '1' recovery rating indicates that lenders can expect very high (90%-100%; rounded estimate: 95%) recovery in the event of a payment default.

The rating action reflects our view that the partnership is strategically important to Delek US, which was recently assigned a 'BB' corporate credit rating. The downstream energy company has four refineries totaling 302,000 barrels per day of refining capacity.

The stable rating outlook reflects our expectation that the partnership will maintain adequate liquidity, adjusted debt to EBITDA of approximately 4x, and a distribution coverage ratio above 1x while increasing its scale and asset diversity from asset drop-downs from Delek US. At the same time, we forecast Delek US to maintain consolidated adjusted leverage in the 1x-2x range.

We could lower our rating on the partnership if we lowered the rating on Delek US. This could occur from weak crack spreads or operational underperformance such that leverage is sustained above 3.5x. We could also consider lower ratings if the partnership pursued an aggressive financial policy such that adjusted debt to EBITDA were sustained above 5x and the distribution coverage ratio were consistently below 1x.

Though unlikely in the next year due to the partnership's limited scale, we could consider higher ratings if we raised the rating on Delek US. This could occur if the refiner significantly diversified its asset base and improved its scale while maintaining credit metrics at current levels.


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