2008-04-01 23:52:58 -
- Fitch Ratings has affirmed the long- and short-term Issuer Default Ratings (IDR) and other outstanding debt ratings for LOOP and LOCAP as follows:
LOOP
--Long-term IDR at 'A-';
--Senior unsecured debt at 'A-';
--$60.5 million first-stage deepwater port revenue bonds and refunding revenue bonds (first-stage debt) at 'A+
--$71.1 million deepwater port refunding revenue
bonds (unsecured debt), series 1998, 2000 and 2001 at 'A-';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
LOCAP
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.
The Rating Outlook for both issuers is Stable.
LOOP's 'A-' IDR reflects its standalone credit profile absent the direct enhancement provided to first-stage debt. The 'A+' rating for LOOP's outstanding first stage debt reflects the structural benefits provided to these securities through the right to receive payments under throughput and deficiency (T&D) agreements with LOOP's owners. Under these agreements, the T&D obligors are required to ship or cause to be shipped through LOOP enough oil to enable LOOP to meet its operating expenses and debt service on all first stage debt. Obligations under the T&D agreements are several, not joint, and Fitch continues to view the blended credit quality of the owners equivalent to 'A+'.
LOOP's 'A-' unsecured debt rating reflects the fact that these securities are pari passu to first stage debt but do not share in the extra credit enhancement provided under the T&D agreements. However, Fitch expects that throughput volumes from non-owner shippers will continue to provide sufficient cash flow to support LOOP's non-T&D backed debt. In particular, management has successfully transformed LOOP into a more competitive, market-based entity capable of attracting increasing volumes of non-owner throughput.
In addition, LOOP has been able to capitalize and benefit from the current high demand for storage. Fitch notes that LOOP may experience temporary weakening of credit metrics due to the increased debt associated with the tank expansion project. However, Fitch estimates that earnings before interest, taxes, depreciation, and amortization (EBITDA) derived from total 3rd party throughput and from storage operations should continue to cover interest on unsecured debt by a comfortable margin for the foreseeable future. Moreover, the existing partnership agreement between LOOP and its owners enable LOOP to make cash calls to cover any operating deficits including shortfalls occurring from previously available cash being used for interest on existing unsecured debt obligations.
LOOP's ratings continue to be supported by the predictable cash flows from the offloading and throughput of crude oil from the deepwater platform and growing storage and rental revenue from the company's underground storage caverns and tank farm near Galliano, Louisiana. Fitch considers it unlikely that U.S. demand for water-borne imports will deteriorate materially over the foreseeable future as throughput through the offshore platform and main oil line has risen to nearly 1.15 million barrels per day in recent quarters. Additional domestic revenues are anticipated in 2008 from the Thunder Horse development, which has been delayed due to structural problems with the development's subsea system.
LOCAP's rating reflects the structural benefits provided to its debt obligations through the right to receive payments under throughput and deficiency (T&D) agreements with LOCAP's owners and/or their respective parent companies. Under these agreements, the owners are obligated to ship or cause to be shipped through LOCAP enough oil to enable LOCAP to meet its operating expenses and debt service obligations. If LOCAP has a cash deficiency each owner is obligated to advance LOCAP its pro rata share of the deficiency. Such cash advances are considered a credit against payments for future transportation. Obligations under the T&D agreements are several, not joint. Fitch views the risk of nonperformance under the T&D agreement as minimal given the importance of the LOCAP pipeline in meeting the refinery feedstock needs of the T&D obligors.
Credit concerns include ongoing competitive pressures from short-haul tankers capable of bypassing LOOP, the potential for growing deepwater Gulf of Mexico (GOM) oil production to displace portions of foreign imports, and possible operating disruptions resulting from future GOM storm activity.
LOOP's outstanding debt is issued by the Louisiana Offshore Terminal Authority with principal and interest payable from and secured by a pledge of installment payments from LOOP. LOOP's floating-rate debt issues receive the structural support of irrevocable letters of credit from third-party financial institutions and are not rated by Fitch.
LOOP is a Delaware limited liability company (LLC) that owns and operates a deepwater oil port located in the Gulf of Mexico, approximately 18 miles offshore from Louisiana. LOOP operates as a common carrier and is governed by the U.S. Department of Transportation and the Louisiana Offshore Terminal Authority.
LOCAP is a Federal Energy Regulatory Commission-regulated crude oil pipeline that provides a connecting link between the deepwater port and storage facilities of LOOP and St. James, La., for distribution to nearby refineries and into the U.S. Mid-Continent region.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings, New York
Peter Molica, +1-212-908-0288
Ralph Pellecchia, +1-212-908-0586
Brian Bertsch, +1-212-908-0549 (Media Relations)
