Moody’s drops Sunoco to Ba3, notes to B1

Moody's Investors Service said it downgraded Sunoco LP's corporate family rating to Ba3 from Ba2, probability of default rating to Ba3-PD from Ba2-PD and senior unsecured note rating to B1 from Ba3.

The outlook is stable.

"The downgrade reflects Moody's view that SUN will not be able to reduce its leverage to below 4.0x over the next year – our trigger for a downgrade," Moody’s assistant vice president, analyst Peter Trombetta said in a news release.

"We estimate SUN's leverage will approximate 5.0x at the end of fiscal 2018 – a level indicative of a lower rating."

Following the March 2016 dropdown of the remaining legacy Sunoco wholesale fuel distribution and legacy Sunoco retail marketing businesses for $2.2 billion, the company has not been able to reduce leverage due to weak operations in oil producing regions of Texas and increased borrowings under its revolver to fund acquisitions and growth capex.

Weakness in operations and high debt levels will also cause Sunoco’s leverage to approach its 6.25 times covenant level at the end of 2016, Moody’s explained.

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