NuStar Energy L.P. Downgraded To 'BB-' On Elevated Leverage For Capital Spending Projects, Outlook Stable

  • San Antonio, Texas-based midstream partnership NuStar Energy L.P.'s leverage remains elevated due to its large capital spending projects.
  • Therefore, we are lowering our issuer credit rating on the partnership to 'BB-' from 'BB'.
  • At the same time, we are lowering our issue-level rating on the partnership's senior unsecured debt to 'BB-' from 'BB' and our issue-level rating on its subordinated notes to 'B' from 'B+'. Our '3' recovery rating on the senior unsecured debt and '6' recovery rating on the subordinated notes remain unchanged.
  • In addition, we are lowering our issue-level rating on NuStar's series A, B, and C perpetual preferred securities to 'B-' from 'B'.
  • The stable outlook reflects our view that NuStar's elevated leverage of 6.9x in 2019 will decline in 2020 as the project's growth projects come online and its capital spending slows.
S&P Global Ratings today took the rating actions listed above. The downgrade 
reflects our view that NuStar's leverage will be above 6.5x on an S&P-adjusted 
basis in 2019. The partnership's capital spending program continues to require 
it to borrow, which will pressure its leverage metrics through our forecast 
period. NuStar expects to spend approximately $550 million in 2019 to complete 
its growth projects, much of which are backed by contracted cash flows. While 
the additional EBITDA from the growth projects would reduce the partnership's 
leverage metric, this is partly offset by the execution risk inherent in the 
projects. Challenges in NuStar's storage segment have also pressured its 
leverage metrics, specifically the reduced cash flows attributed to its St. 
Eustatius terminal. While NuStar has taken a number of positive credit actions 
over the past 18 months--including lowering its distributions, simplifying its 
partnership structure and selling its European assets--we view them as 
insufficient to reduce its leverage below our target range to maintain a 'BB' 

The stable outlook on NuStar reflects our view that the partnership will 
execute its growth projects and increase its volumes, especially in the 
Permian system. Therefore, we expect its S&P-adjusted leverage of 6.9x in 2019 
to decline to 6.3x in 2020. We also expect the partnership to maintain 
adequate liquidity.

We could consider lowering our rating on NuStar if its leverage remains above 
7x on an S&P Global Ratings-adjusted basis or if its liquidity deteriorates. 
This could occur because of a weaker-than-expected performance in the 
partnership's base business or stalled expansion from its growth projects, 
including those in its Permian system.

We could raise our rating on NuStar if it is able to maintain S&P-adjusted 
debt to EBITDA of less than 5.5x. This could occur due to 
better-than-forecasted cash flows from the partnership's storage segment or 
greater-than projected volume growth in its Permian crude gathering system
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