Moody's affirms Giant Industries, rates Western Refining loan B1

Moody's Investors Service said it assigned B1 corporate family and probability-of-default ratings to Western Refining Co., LP, a wholly owned subsidiary of Western Refining, Inc., and a B1 rating with a loss-given-default assessment of LGD3 (31%) to its proposed senior secured $1.4 billion seven-year term loan B, which can be expanded by $100 million.

The agency also affirmed Giant Industries, Inc.'s corporate family and probability-of-default ratings at B1 and its $280 million senior subordinated notes at B2 (LGD4, 60%).

The outlook is stable.

Western Refining will use the term loan to fund its $1.5 billion acquisition of Giant. The acquisition price includes a tender offer for all of Giant's senior subordinated notes and other substantial transactions costs.

The agency said Western Refining's ratings reflect its seasoned management; increased pro forma scale: much greater diversification of unscheduled downtime risk, regional refined product margin risk and logistical risks to sourcing crude oil feed; and its four refineries' long histories of viable operations in their home markets. The ratings also reflect Moody's expectation that, while refining sector margins are likely in a moderating downward trend, they are likely to remain above six-year average margins during the important initial phases of planned debt reduction.

The ratings are constrained by very high post-acquisition leverage, by heavy capital spending and interest burdens that considerably restrict the amount of expected early debt reduction, by the Western Refining's need to demonstrate it can avoid the material unscheduled downtime events that Giant's Yorktown, Va., refinery has had in the past, high inherent sector margin cyclicality, the potential moderating impact on margins from the expansions of at least four refineries supplying the Southwestern market and the thinner, more volatile Atlantic Basin margin environment in which Yorktown operates.

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