Fitch Ratings has affirmed the existing ratings on LOOP, LLC., as listed below. Approximately $243.7 million of first-stage debt and $245.3 million unsecured debt is affected by this rating action. The Rating Outlook is Stable.
LOOP's 'A-' IDR reflects its standalone credit profile absent the direct enhancement provided to first-stage debt through the throughput and deficiency (T&D) agreements from the owners. LOOP is strategically positioned as the only deep-water port in the U.S. capable of offloading ultra-large crude carriers and very large crude carriers which are too large to access inland port facilities. LOOP's owners are U.S. subsidiaries of Royal Dutch Shell plc (46.1%; IDR rated 'AA', Stable Outlook by Fitch), affiliates of Marathon Petroleum Corp. (50.7%), and Murphy Oil Corp. (3.2%).
The 'A' rating for LOOP's outstanding first-stage debt considers the structural benefits provided to these securities through the right to receive payments under T&D agreements with LOOP's owners. Under these agreements, the T&D obligors are required to ship or cause to be shipped through LOOP enough oil to enable LOOP to meet its operating expenses and debt service on all first-stage debt according to their pro-rata share of ownership. Alternatively, the owners severally agree to make cash payments to LOOP for any deficiency in meeting these obligations for which they will receive a credit for future throughput.
While LOOP's 'A-' unsecured debt ranks pari passu with first-stage debt, it does not share in the extra credit support provided by the T&D agreements. Fitch expects that throughput volumes from non-owner shippers will continue to provide sufficient cash flow to support LOOP's non-T&D backed debt. LOOP has been successful in increasing volumes of non-owner throughput, and for 2010 constituted 45% of total import throughput on the Main Oil Line (MOL).
LOOP is in the process of expanding its above-ground storage capacity at its Clovelly, Louisiana tank farm (CTF) by five 600,000-barrel above-ground storage tanks. Currently, three tanks are under construction and two more are planned. The CTF currently consists of 12 above-ground 600,000-barrel storage tanks. The total cost of the project is $100 million and LOOP financed the expansion by issuing $100 million of unsecured bonds in the second half of last year. Construction on the tanks is in progress and all tanks are expected to be in service by Jan. 1, 2014. Going forward, as the tanks come online, storage revenues are projected to increase as the additional storage supply improves the potential for arbitrage opportunities for LOOP's shippers.
Key rating strengths include:
--Strong cash flows;
--Stable and consistent throughput on the MOL;
--Local market area refining demand; and
--Management's strategy.
Fitch's Stable Outlook anticipates that debt leverage, as measured by the ratio of debt to EBITDA, will approximate 3.5 times (x) in 2013 as revenue and earnings from LOOP's CTF expansion project begin to come online. LOOP's ratings continue to be supported by predictable cash flows from its core operations, which consist of revenue generated from import oil throughput provided by the MOL, and domestic oil throughput provided by the MARS and Thunderhorse oil platforms.
Fitch's key credit concerns include:
--The potential for Canadian crude oil production to displace foreign imports;
--High leverage;
--Ongoing competitive pressures from short-haul tankers capable of bypassing LOOP;
--Competition from lightering (transferring oil from large ships to smaller ships that can access shallower ports);
--An evolving operating profile with the expansion of the company's storage facilities; and
--Possible operating disruptions resulting from future Gulf of Mexico storm activity.
These concerns are limited by stable and consistent throughput volumes on LOOP's MOL, and more recently, domestic throughput on the Mars pipeline.
Future long-term maturities are minimal and LOOP has sufficient liquidity to meet ongoing financial obligations. As of June 30, 2011 LOOP had $166 million of liquidity available including $116 million of cash and cash equivalents. For the latest 12-month period ending June 30, 2011 LOOP had free cash flow (FCF) of $24 million and, going forward, Fitch expects LOOP to be modestly FCF positive. Fitch notes that the company has the ability to limit owner distributions to access liquidity if needed.
LOOP is a Delaware limited liability company that owns and operates a deepwater oil port located in the Gulf of Mexico approximately 18 miles off the coast of Louisiana.
Fitch affirms the following:
--Long-term Issuer Default Rating (IDR) at 'A-';
--First-stage deepwater port revenue bonds and refunding revenue bonds (first-stage debt) at 'A';
-- Deepwater port refunding revenue bonds (unsecured debt) at 'A-';
--Senior unsecured debt at 'A-';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria:
'Corporate Rating Methodology', Aug. 16, 2010,
'Recovery Ratings and Notching Criteria for Utilities', May 12, 2011;
'Rating North American Utilities, Power, Gas and Water Companies', Special Report, May 16, 2011.
Applicable Criteria and Related Research:
Rating North American Utilities, Power, Gas, and Water Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=625129
Recovery Ratings and Notching Criteria for Utilities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=628491
Corporate Rating Methodology - Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Contacts:
Fitch Ratings
Primary Analyst
Daniel Neama, +1-212-908-0561
Associate
Director
1 State Street Plaza, New York, NY, 10004
or
Secondary
Analyst
Peter Molica, +1-212-908-0288
Director
or
Committee
Chairperson
Sharon Bonelli, +1-212-908-0581
Managing Director
or
Media
Relations:
Brian Bertsch, +1-212-908-0549
Email: brian.bertsch@fitchratings.com