Fitch downgrades Sunoco, debt

Fitch Ratings said it downgraded Sunoco, LP's long-term issuer default rating to BB- from BB, senior secured rating to BB/RR1 from BB+/RR1 and senior unsecured rating to BB-/RR4 from BB/RR4.

The outlook was revised to negative from stable.

Fitch said the downgrade and negative outlook reflect a rising concern over inflated leverage levels at Sunoco.

The agency believes the company’s elevated leverage over the next several quarters has the potential to pressure liquidity at the company given covenant restrictions on Sunoco’s revolver and term loan A.

Sunoco’s aggressive acquisition strategy has pushed leverage (as defined in its revolver and term loan A covenants) to roughly 5.9 times for the third quarter 2016, roughly within a quarter turn of its leverage covenant of 6.25 times.

The leverage covenant begins to step down in the second quarter of 2017, which has the potential to restrict liquidity.

While it believes that Sunoco will remain in compliance with covenants, Fitch said the step down in covenant level coupled with potential EBITDA weakness suggests an increased risk around a possible covenant breach in mid-2017.

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