Moody's: Giant Industries developing

Moody's Investors Service said it changed Giant Industries Inc.'s outlook to developing from stable and affirmed the company's B3 senior subordinated note rating and B1 corporate family rating.

The affirmation and change in outlook follows the announcement that debt-free Western Refining, Inc. will acquire Giant for $83 per share and assume $275 million in Giant debt for a total transaction value of $1.5 billion. In connection with the acquisition, Giant said it would likely tender for and retire its existing senior subordinated note issues. Western will fund the share purchase and Giant debt refinancings with proceeds from Western's pending $1.5 billion senior secured term loan, up to $250 million in combined Giant/Western balance sheet cash and Western's pending $500 million senior secured working capital revolver.

The agency said that if Giant's bonds are not retired, the notes will retain their ratings or be moved up or down by one notch, depending on final leverage at closing, cash flows and margin outlook at the time and the reasonably expected pace of Western debt reduction at the time. If Giant's bonds remained outstanding, the bond ratings will be notched according to the protocols of Moody's pending loss-given-default notching methodology.

Pro-forma, the ratings would reflect leverage, Western's learning curve in assimilating Giant and the inherent risk of high margin cyclicality driven by macro forces on demand and sector and by regional forces on crude oil and refined product demand and supply, Moody's said.

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