CVR Partners L.P. #B+# Ratings Outlook Revised To Negative On High Leverage

Stocks and Financial Services Press Releases Thursday May 31, 2018 09:05
NEW YORK--31 May--S&P Global Ratings

NEW YORK (S&P Global Ratings) May 30, 2018--S&P Global Ratings today affirmed its 'B+' long-term corporate credit rating on master limited partnership CVR Partners L.P. The outlook is revised to negative from stable.

At the same time, we affirmed our 'B+' issue-level rating on the partnership's senior secured notes due in 2023. The '3' recovery rating is unchanged, indicating our expectation for meaningful recovery (50%-70%; rounded estimate: 50%) in the event of default.

Our outlook revision reflects financial performance weakening more than we had expected and leverage will remain high this year at 7x. The pricing environment was very challenging for many nitrogen fertilizer producers over the last several years because of global supply that outpaced demand growth. U.S. nitrogen fertilizer prices reached multiyear lows in 2016 and fell sharply again in the latter half of 2017. As a result, our credit metrics for CVR Partners are weaker than we initially estimated, with adjusted debt to EBITDA about 9x in fiscal year 2017 compared with our forecast of 6x.

We could lower the ratings over the next 12 months if our forecast of adjusted debt to EBITDA indicates a considerable upward trend above 7x. This could stem from a stall or reverse in the price recovery of nitrogen fertilizers or a sharp decline in revenues due to less demand because of adverse weather conditions or unforeseen technical challenges that require a shutdown for extensive period. We could also consider lowering the rating if the credit quality of CVR Energy weakens. This could occur if refining margins at CVR Refining L.P. deteriorate materially.

We could consider revising the outlook to stable if cash flow prospects improve over the next 12 months relative to our expectations. This could stem from the continuation of the price recovery, perhaps driven by improved market demand for nitrogen-based fertilizer products, but without a material increase in market supply.


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