Fitch Ratings has affirmed LOOP LLC's ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'BBB+';
--First-stage deepwater port revenue bonds and refunding revenue bonds
(first-stage debt) at 'A-';
--Deepwater port refunding revenue bonds (unsecured debt) at 'BBB+';
--Senior unsecured debt at 'BBB+';
--Short-term IDR at 'F2'.
Fitch has also affirmed and withdrawn its 'F2' rating for commercial
paper since LOOP does not utilize commercial paper. Approximately $243
million of first-stage debt and $153 million of unsecured debt is
affected by this rating action. The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings are supported by LOOP's strategic position as the only
deep-water port in the U.S. capable of offloading ultra-large crude
carriers and very large crude carriers that are too large to access
inland port facilities. It is also well positioned to receive domestic
crudes delivered by medium range tankers. Crude oil storage has been an
increased focus and new expansions should modestly benefit EBITDA. The
ratings are further supported by expectations that LOOP's owners will
continue to demonstrate support with financial flexibility for
distributions. LOOP's owners are U.S. subsidiaries of Royal Dutch Shell
plc (46.1%; IDR 'AA', Rating Watch Negative), affiliates of Marathon
Petroleum Corp. (50.7%; IDR 'BBB', Outlook Stable), and affiliates of
Valero Corp. (3.2%; IDR 'BBB', Outlook Stable).
In addition, the ratings consider LOOP's strategically located assets in
the Gulf Coast. In 2014, LOOP imported 6.5% of all crude imports into
the U.S. While significant, volumes have fallen from 10.4% of crude
imports in 2012. However, the company has assets well positioned to
handle domestic crudes arriving by medium range tankers and by pipeline.
Those volumes have been increasing over the last few years and Fitch
expects domestic volumes to continue to rise. Furthermore, LOOP should
benefit from better results from existing crude storage assets as well
as storage expansion projects.
Rating concerns center on expectations for modestly lower EBITDA which
is expected as a result of lower throughput volumes over the next couple
of years. Gulf Coast crude oil imports have been unfavorably impacted by
the North American shale revolution, which has sharply raised the
availability of discounted Canadian and interior shale crude oils into
the Midwest and the Gulf Coast, in turn displacing the need for
waterborne imports transported through LOOP facilities.
Fitch is also concerned about the potential for the Capline pipeline to
reverse its flows. Capline currently moves crude north from Louisiana to
Illinois. Owners of Capline have contemplated moving Canadian crude
south to refiners in the Gulf Coast for some time and it is unknown if a
reversal would occur. If it did, it could impact volumes for LOOP.
Capline is an underutilized crude pipeline with capacity of 1.2 million
barrels per day.
The 'A-' rating for the first-stage debt reflects the benefits stemming
from the right these bondholders have to receive payments under T&D
agreements with LOOP's owners. The T&D obligors are required to ship or
cause to be shipped 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 in exchange for a credit for future throughput. In addition,
a portion of the first-stage debt is backed by irrevocable letters of
credit which provides additional credit enhancement to specific tranches.
While LOOP's 'BBB+' unsecured debt ranks pari passu with first-stage
debt, it does not share in the additional credit enhancement provided by
the T&D agreements. However, 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. In 2014, third party volumes
accounted for 21% of import throughputs. Import throughputs accounted
for 56% of LOOP's overall throughput.
Leverage for the latest 12 months (LTM) ending June 30, 2015 was 4.0x,
up from 3.4x at year-end of 2014. The increase is attributed to a slight
decline in EBITDA while debt was unchanged. Importantly, LOOP's leverage
has improved significantly since year-end 2013 when it was 5.4x as a
result of weak EBITDA. Fitch does not expect leverage to return such
high levels. For year-end 2015, Fitch expects leverage to be in the
range of 3.6x to 3.8x.
--Fitch forecasts lower volumes of imported crude. Domestic volumes are
projected to increase and expected to offset lost import volumes.
--EBITDA margins in the forecast period of 2015 to 2018 are forecasted
to be between 40% and 44%, well below margins of 48% as seen in 2014.
--Dividends to owners are expected to fluctuate based on LOOP's cash
flows. Fitch assumes that past dividend flexibility will continue.
--Capex is expected to peak in 2015 followed by more normalized levels
of approximately $30 million.
--Leverage is projected to be in the range of 3.6x to 3.8x at the end of
2015. With expectations for lower EBITDA in 2016, Fitch forecasts
leverage in the range of 3.8x to 4.2x at the end of 2016. Leverage is
forecasted to decline beyond 2016.
--No assumptions are made for Capline potentially reversing crude flows
to the north. A reversal of Capline is expected to hurt LOOP's results.
Positive: Future developments that may, individually or collectively,
lead to positive rating action include:
--Significant leverage reduction along with stable throughput volumes.
Should leverage fall below 3.5x for a sustained period of time, Fitch
may take positive rating action.
Negative: Future developments that may, individually or collectively,
lead to a negative rating action include:
--Deterioration in the underlying credit quality of LOOP's T&D obligors
or unfavorable revisions in T&D support agreements;
--A shift in crude transportation dynamics which permanently reduces
--Increased leverage beyond 4.25x for a sustained period of time.
As of the end of June 30, 2015, LOOP had $62 million of cash on the
balance sheet. In addition, it has a $50 million revolver which extends
until December 2017. In October 2015, $40 million of T&D bonds come due.
LOOP has the ability to remarket these notes. Fitch notes that the
dividend payable to LOOP's owners is discretionary and enhances the
FULL LIST OF RATING ACTIONS
--Long-term Issuer Default Rating (IDR) affirmed at 'BBB+';
--First-stage deepwater port revenue bonds and refunding revenue bonds
(first-stage debt) affirmed at 'A-';
--Deepwater port refunding revenue bonds (unsecured debt) affirmed at
--Senior unsecured debt affirmed at 'BBB+';
--Short-term IDR affirmed at 'F2';
--Commercial paper affirmed at 'F2' and withdrawn.
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com.
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
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