S&P Takes Negative Rating Action on Some Oil Refiners

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Includes: ALJ, WNR
by: Research Recap

Standard & Poor’s Ratings Services today took several negative rating actions on oil refiners following an industry review.

Excerpts from Ratings On Several Oil Refiners Placed On CreditWatch Negative After Industry Review (Premium)

In our view, industry conditions will remain difficult in 2010 and possibly into 2011 due to weak product demand, thin crude oil differentials, nominal crack spreads, low utilization rates, and high oil prices.

  • We lowered the corporate credit rating on Western Refining Inc. (NYSE:WNR)
    (Western) to ‘B’ from ‘B+’ and placed the rating on CreditWatch with negative
    implications. At the same time, we lowered the senior secured rating to ‘B+’
    from ‘BB-’ and the senior unsecured rating to ‘CCC+’ from ‘B-’.
  • We have placed our ratings on CITGO Petroleum Corp., including the ‘BB-’
    corporate credit rating, on CreditWatch with negative implications.
  • In addition, we have placed our ratings on Alon USA Energy Inc. and its
    subsidiary, Alon Refining Krotz Springs Inc., including the ‘B+’ corporate
    credit ratings, on CreditWatch with negative implications.
  • Finally, we have placed our ratings on United Refining Co. (United), including
    the ‘B’ corporate credit rating, on CreditWatch with negative implications.

Related commentary via Alacra Pulse: (Zacks, Mar 10) WNR Loss Narrows but Stays “Sell.” Oil refiner and marketer Western Refining Inc. WNR reported better-than-expected fourth quarter results, helped by higher sales volumes. Its loss per share, excluding special items, came in at 58 cents, narrower than the Zacks Consensus Estimate of 65 cents.

Given that the overall environment for refining margins is likely to remain poor, we are bearish on oil refiners like Western.

On Feb 3 analysts at Caris & Company downgraded Alon USA Energy (NYSE:ALJ) from “average” to “below average.”