Sunoco, Inc''s ratings and Outlook (IDR ''BBB''; Outlook Stable) remain unchanged following the company''s announced restructuring plan, although Fitch Ratings views the plan as supportive for the credit. Under the plan, the company will idle its 150,000 barrels per day (bpd) Eagle Point, NJ refinery indefinitely and shift production to its Marcus Hook and Philadelphia refineries, in the process lifting utilization rates across its remaining Northeastern system and achieving annual pre-tax expense reduction of $250 million. Sunoco will incur $475 million - $550 million in pre-tax expenses in the process, most of which are non-cash charges for the write down of the refinery''s book value. Sunoco has also cut its dividend payout in half, a move which is expected to save approximately $70 million per year in cash beginning in 2010. Both moves are expected to increase the company''s near-term liquidity.
While Fitch anticipates that headroom under Sunoco''s net-debt-to-capitalization and excess tangible net worth covenants may shrink modestly due to the impairment of the refinery, Fitch also anticipates that significant headroom will remain under both metrics following this action. Note that the impact of the impairment on Sunoco''s main net-debt-to-capitalization ratio will be softened by the cash generated through the liquidation of physical inventories at Westville (crude and refined products). At June 30, 2009, Sunoco''s net-debt-to-cap ratio was 41% versus a limit of 60%, and excess net worth over minimum levels was $1.1 billion.
Fitch views the company''s move to lower its fixed costs as a positive for the credit, although it takes place in a challenging near-term macro-environment for refiners. Heading into the Northern hemisphere winter, refiners continue to look substantially oversupplied on the winter heating distillate front. According to the latest Energy Information Administration (EIA) data, total distillate inventories at the beginning of October came in at a very high 172 million barrels, or 50.5 days of supply, versus last year''s 123 million barrels of supply and a five year average of approximately 133 million barrels of supply. As a result of this overhang--as well as the need for markets to accommodate a sizable slug of new, more efficient global refining capacity online or expected online soon--Fitch anticipates that low utilization rates for domestic refiners are likely to persist over the next few quarters.
Fitch''s current ratings for Sunoco, Inc. are as follows:
--Long-term Issuer Default Rating (IDR) ''BBB'';
--Senior unsecured debt ''BBB'';
--Subordinated debentures ''BBB-'';
--Commercial paper at ''F2'';
--Short-term IDR at ''F2'';
The Ratings Outlook is Stable.
Sunoco is one of the largest independent petroleum refiners and marketers in the United States. The company''s retail presence includes approximately 4,700 outlets along the East Coast and in the Midwest. The company is also a large petrochemical producer, predominantly chemical intermediates, with annual sales of approximately five billion pounds. Sunoco also operates coke-making facilities in Virginia, Ohio, Indiana, and Brazil and currently owns approximately 40% of Sunoco Logistics Partners L.P (SXL), including the 2% GP stake.
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