OREANDA-NEWS. Fitch Ratings rates Sunoco Logistics Partners L. P.'s (Sunoco Logistics) senior unsecured notes 'BBB'. The notes are to be issued by Sunoco Logistics Partners Operations L. P. and guaranteed by Sunoco Logistics Partners. Proceeds are to be used to repay borrowings on its revolving credit facility and for general partnership purposes which may include expansion capex.

A full list of ratings for Sunoco Logistics and Sunoco Logistics Partners Operations L. P. is at the end of this press release.

KEY RATING DRIVERS

Sunoco Logistics' rating is supported by the following strengths:

--Large diversified asset base that serves high-demand markets;

--Stable, fee-based operations that account for a majority of the partnership's EBITDA;

--Growth projects which are planned and in development that will provide Sunoco Logistics with additional long-term fee-based cash flows;

--Supportive financial credit metrics including a strong distribution coverage ratio which indicate a less aggressive capital structure relative to similarly rated industry peers.

The ratings also factor in the following:

--Expectations for adjusted leverage to decrease during the current year following increases in 2015 and 2014 as significant spending pressured credit metrics;

-Volatility and working capital needs associated with market-related operations.

Diversified Asset Base: Sunoco Logistics benefits from a mix of fee-based assets consisting of crude oil pipelines, product pipelines, and refined product and crude oil terminal facilities. Sunoco's latest-12-months (LTM) first quarter 2016 (3Q15) adjusted EBITDA was nearly $1.3 billion. Contributions to EBITDA were the following: 56% crude oil pipelines, 30% natural gas liquids, and 14% from refined products.

Leverage: At March 31, 2016, leverage (as defined by Fitch as debt-to-adjusted EBITDA) was 4.7x, down from 4.9x at the end of 2015. Higher debt associated with increased growth capital spending accounted for the uptick in leverage since the end 2014. Fitch expects to see leverage come down in 2016 as new projects come online and growth spending is reduced from the prior two years. Failure for Sunoco Logistics to reduce adjusted leverage below 4.5x on a sustained basis may cause Fitch to take negative rating action.

Capital Expenditures: Sunoco Logistics has stated that its 2016 expansion capex budget is to be significantly reduced from the prior forecast of $2.5 billion although a revised number has not yet been disclosed. The new forecast should be below the $2.6 billion spent on growth in 2015 and the $2.5 billion spent in 2014. Fitch views the bulk of Sunoco Logistics' capital spending as low-risk since projects are supported by contractual commitments for capacity.

Distributable Cash Flow and Coverage: Distributable cash flow (DCF) generated in the LTM ending 1Q16 was roughly $1.0 billion, up from $879 million in 2015. The distribution coverage remained strong at 1.3x for the LTM, but below even stronger coverage seen historically when SXL generated higher levels of cash flows from market related activities versus more fee-based cash flows.

ETP owns the general partner (GP) interest, 100% of the incentive distribution rights and a 28% limited partnership interest in Sunoco Logistics. ETE owns 90% of the cash distributions and other economic attributes of the GP interest and incentive distribution rights of SXL, as well as, limited and GP interests in ETP.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Sunoco Logistics include the following:

--EBITDA and distributable cash flows increase in 2016 given new projects coming online including Mariner East 1 (ethane and propane) in 1Q16, Bayou Bridge Lake Charles in 2Q16, the Permian Longview and Louisiana Extension in mid-2016, and the Delaware Basin Extension in mid-2016. The Bakken pipeline is scheduled to come into service in 4Q16 which should also benefit 2016 results to some extent;

--Growth capex in the current year of approximates $2.0 billion.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Positive rating action is not expected at this time. Leverage would need to be reduced to below 3.0x on a sustained basis.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Leverage (defined as debt-to-adjusted EBITDA) in excess of 4.5x on a sustained basis. Fitch recognizes that recent adjusted leverage has been above this and attributes the increase to higher spending. Importantly, Fitch anticipates that leverage should decrease over the course of 2016.

--Increased exposure to market-sensitive businesses and other more volatile operations without offsetting adjustments.

LIQUIDITY

Sunoco Logistics has sufficient liquidity. At the end of 1Q16, it had approximately $1.6 billion of liquidity which consisted of $43 million of cash and nearly $1.6 billion undrawn on its revolver due 2020. The partnership also has a $2.5 billion commercial paper program which is backed by the revolving credit facility.

The revolver limits leverage (as defined by the bank agreement) to 5.0x at the end of each quarter. With certain acquisitions, leverage could temporarily increase to 5.5x. The bank definition of EBITDA gives pro forma credit for acquisitions and material projects. The definition of debt carves out borrowings used for contango trades up to $500 million.

As of the end of 1Q16, bank defined leverage was 3.5x, leaving significant cushion for the bank covenant. In May 2016, Sunoco Logistics paid off $175 million of debt which became due. Future maturities are manageable and the next bond maturity is $250 million due in 2020.

FULL LIST OF RATING ACTIONS

Fitch currently rates Sunoco Logistics as follows:

Sunoco Logistics Partners L. P.

--Long-term Issuer Default Rating (IDR) 'BBB'.

Sunoco Logistics Partners Operations L. P.

--Long-term IDR 'BBB;

--Senior unsecured debt 'BBB';

--Senior unsecured bank facilities 'BBB';

--Short-term IDR 'F2';

--Commercial paper (CP) 'F2'.

The Rating Outlook for both entities is Stable.