Fitch Ratings has affirmed the Issuer Default Rating (IDR) and senior unsecured ratings of Sunoco Inc. (Sunoco) at 'BBB'. The Rating Outlook remains Stable.
Fitch affirms Sunoco's debt as follows:
--Long-Term Issuer IDR at 'BBB';
--Senior unsecured debt at 'BBB';
--Subordinated debentures at 'BBB-';
--Commercial Paper at 'F2';
--Short-Term IDR at 'F2'.
The rating affirmation is supported by Sunoco's sizable refining base, its strong market position in the Northeast, its diversified portfolio of non-refining businesses, and its historically conservative credit profile. Rating concerns center on the volume and margin impacts of the global recession on Sunoco's core refining business, coke's concentrated exposure to the steel industry, and over the longer term, Sunoco's limited feedstock flexibility as a light, sweet crude oil refiner. Fitch notes that given the substantial cost to add flexibility across its system, any change in the strategic direction of the refining assets could place significant future pressure on cash flows.
Results in the fourth quarter were solid relative to peers despite weakness across the refining sector. As previously stated, results have been supported by profits at non-refining businesses, including coke (2008 segment net income of $105 million vs. 2007's $29 million); Sunoco Logistics (2008 segment net income of $85 million vs. $45 million); and Retail (2008 segment net income of $201 million vs. $69 million). Retail in particular was a beneficiary of the volatile drop in crude oil prices, as pricing at filling stations tends to be downward sticky, increasing margins during a period of falling prices.
The company saw modest impairments at year-end 2008 linked to the closure of its polypropylene plant in Bayport Texas ($35 million), the write-down on the Tulsa refinery ($95 million), and other items. Even with these impairments, net-debt-to-capitalization and tangible net worth covenants still have significant headroom - at year-end, tangible net worth was approximately $1.2 billion above covenant levels, while net debt-to-cap was 37% versus a covenant limit of 60%. Sunoco maintains liquidity through cash on hand, cash from operations, and borrowing availability from its revolvers and accounts receivable securitization facility.
Availability across these facilities totaled approximately $1.5 billion at year end. Cash and equivalents at year end was $240 million. Sunoco's liquidity continues to benefit from not having to post Letters of Credit (LCs) for its crude purchases.
Sunoco is one of the largest independent petroleum refiners and marketers in the United States. The company's five sweet crude refineries have a combined crude capacity of approximately 910,000 barrels per day (mbpd) including 655,000 bpd from its three refineries in the Northeast. Currently, Sunoco is considering strategic alternatives for its 85,000 bpd Tulsa refinery. 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 43% of Sunoco Logistics Partners L.P (SXL).
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