Caa1 CFR affirmed
28 Sep 2018
$1.575 billion of rated debt affected
New York, September 28, 2018 — Moody’s Investors Service (Moody’s) changed the ratings outlook for Calumet Specialty Products Partners, L.P. (Calumet) to stable from negative. It also affirmed the Caa1 Corporate Family Rating (CFR) and Caa2 ratings on the existing senior unsecured notes. The Speculative Grade Liquidity Rating was changed to SGL-2 from SGL-3.
The change in outlook reflects Moody’s expectation that Calumet will continue to improve its operating performance
The following summarizes the ratings activity.
Calumet Specialty Products Partners, L.P.
Ratings affirmed:
.Corporate Family Rating — affirmed at Caa1
.Probability of Default Rating — affirmed at Caa1-PD
.Senior unsec notes due 2021 — affirmed at Caa2 (LGD4 from LGD5)
.Senior unsec notes due 2022 — affirmed at Caa2 (LGD4 from LGD5)
.Senior unsec notes due 2023 — affirmed at Caa2 (LGD4 from LGD5)
Ratings upgraded:
.Speculative Grade Liquidity Rating — SGL-2 from SGL-3
Outlook Action:
.Outlook — changed to Stable from Negative
RATINGS RATIONALE
The move to a stable rating outlook reflects the relative stability of the Specialty Products business’ earnings and the potential for refining margins to improve. The repayment of $400 million of notes in April 2018 has improved leverage metrics. Additionally, the company has made progress in adopting its new ERP system and issued its second quarter financial statements on a timely basis.
Calumet’s Caa1 CFR reflects its modest scale, elevated leverage, improving operating performance, but historical negative free cash flow generation. The company’s Specialty Products segment generates about one-third of revenues and three-quarters of adjusted EBITDA (as reported by Calumet) and Fuel Products accounts for about two-thirds of revenues and one-quarter of EBITDA, following restructuring, which has included the sale of the Superior Wisconsin refinery and sale of the oilfield services business. Calumet is exposed to volatile raw material (crude oil) costs, which it generally can pass on to customers of specialty products, but refining profit margins remain volatile, even after the company hedges its commodity price exposures and has access to advantaged feedstocks. The company’s seven facilities have a combined throughput capacity of 140,000 barrels per day. The Fuel Products business produces transportation fuels, that can be more seasonal and cyclical than the Specialty Products earnings. The company benefits from geographic diversity of operations, a diverse customer base (no customer represents ten percent or more of revenues) and its numerous specialty products (some of which are recognized brands) offer exposure to diverse end markets. Calumet generated negative free cash flow in 2017 and the first half 2018, even after large reductions in capital spending. Its leverage (debt/EBITDA), which was 5.6x as of June 30, 2018, stepped down after the $400 million of secured notes due 2021 were repaid in April 2018 and is benefiting from ongoing year-over-year improvements in EBITDA generation. However, the leverage metrics will remain above the 4.0x level targeted by management through 2019 as a result of a lack of meaningful free cash flow generation that could be applied towards debt reduction.
Calumet’s SGL-2 Speculative Grade Liquidity rating reflects the good liquidity profile, supported by availability under the undrawn revolving $600 million ABL credit facility, operating cash flow that should cover its capital expenditures and cash on hand ($39 million as of June 30, 2018). The asset based revolver had a borrowing base of $343 million as of June 30, 2018. Moody’s expects the company will generate positive free cash flow in 2019, if working capital needs do not materially increase and it does not engage in new growth capital projects. The company does not pay distributions to unitholders, although distributions are no longer restricted following the repayment in April 2018 of the secured notes due 2021. The next debt maturity is $900 million of unsecured notes due 2021.
The revolving credit facility generally permits the company to make cash distributions to unit holders as long as immediately after giving effect to such a cash distribution, availability under the revolving credit facility totals at least the sum of the FILO loans plus the greater of: (i) 15% of the Borrowing Base; and (ii) $60 million. The revolver has one springing financial covenant which provides that only if availability under the facility falls below the sum of the FILO loans plus the greater of: (i) 10% of the Borrowing Base; and (ii) $35 million, the company is required to maintain a Fixed Charge Coverage Ratio of at least 1.0 to 1.0 as of the end of each fiscal quarter.
The senior unsecured notes are rated Caa2, one notch below the Caa1 CFR, consistent with Moody’s Loss-Given-Default Methodology, reflecting their lower priority claim on assets than borrowings under the secured revolving credit facility. Calumet’s balance sheet debt includes the secured ABL revolving credit facility and three unsecured notes issues totaling $1.575 billion.
The ratings could be upgraded if leverage (debt/EBITDA) falls below 6.0x and interest coverage remains above 1.3x on a sustained basis. The ratings could be downgraded if the company generates negative free cash flow, does not maintain an interest coverage ratio above 1.1x or liquidity declines.
The principal methodology used in these ratings was Refining and Marketing Industry published in November 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Calumet Specialty Products Partners, L.P., headquartered in Indianapolis, Indiana, is an independent North America producer of specialty hydrocarbon products, such as lubricants, solvents and waxes, and fuel products. It is structured as a publicly traded Master Limited Partnership (MLP). Calumet operates two business segments: Specialty Products and Fuel Products.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
James Wilkins
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Steven Wood
MD – Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
