Fitch: Sunoco Logistics Acquisition Neutral to Ratings
SXL announced late yesterday that it would acquire crude oil infrastructure in the Midland Basin from Vitol, Inc. for $760 million. The funding of the acquisition will be heavily weighted towards equity, with SXL also announcing a 21 million unit equity offering (with a 30-day underwriter option for 3.15 million additional units) and a two-year, $60 million incentive distribution waiver from SXL's general partner's owners Energy Transfer Partners, LP (ETP; Long-Term IDR: 'BBB-'/Stable Outlook) and Energy Transfer Equity, LP (ETE; Long-Term IDR 'BB'/Stable Outlook). Fitch believes that the strong equity funding and incentive distribution waiver illustrates SXL's commitment towards maintaining reasonable balance sheet metrics.
SXL is acquiring a crude oil terminal, gathering and mainline pipeline system, and a 50% interest in the SunVit Pipeline (of which SXL is already a 50% owner) in West Texas. Additionally, SXL will acquire crude oil inventories related to Vitol's crude oil acquisition and marketing business. SXL is acquiring these assets for approximately $760 million plus working capital. The acquisition is expected to close in the 4Q 2016, subject to certain closing conditions and regulatory approvals.
Fitch believes the acquisition to be mildly positive for SXL's operations in that it helps to increase SXL's footprint in the Midland/Permian region where Fitch continues to expect production growth and a longer term need for infrastructure.
The acquisition will provide SXL an increased footprint in what is expected to continue to be a prolific production region. Revenue and volumes are supported in part by acreage dedications from a large investment grade producer in the region and should help generate a relatively stable cash flow profile for the terminal and storage assets being acquired. Additionally, the assets offer some upside from potential future expansions and increased integration into SXL's existing footprint in the region.