Tesoro’s Credit Rating Upgraded: S&P Expects WNR Benefits to Pour In



Tesoro’s credit rating upgraded

Credit rating agency Standard and Poor’s (or S&P) recently upgraded the credit rating of downstream player Tesoro (TSO). S&P Global Ratings upgraded Tesoro’s corporate credit and senior unsecured issue from BB+ to BBB- with a stable outlook. TSO also has a BBB- rating from Fitch Ratings as its long-term issuer default rating.

According to Tesoro’s (TSO) June 5, 2017, press release, S&P indicated that “the stable outlook reflects our expectation that Tesoro will successfully integrate the Western Refining acquisition, continue to drive operational improvements and enhance margins at its refineries, while not meaningfully increasing consolidated financial leverage beyond current levels.

“We also believe the company will continue to manage the effects of carbon tax regulation on its business, expand and diversify its midstream business, and maintain ample liquidity.”

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Tesoro’s acquisition of Western Refining

This rating upgrade is significant because Tesoro (TSO) has seen a steep surge in its debt level following its acquisition of Western Refining (WNR). TSO has completed the acquisition process.

Tesoro expects annual synergies of ~$350 million–$425 million from the integration of WNR, operational improvements of $475 million–$575 million in 2017, and sharp growth in its logistics portfolio.

Effective August 1, 2017, the merged Tesoro-WNR entity will be named Andeavor.

A word from Tesoro’s management

Commenting on the company’s rating upgrade, Tesoro’s (TSO) executive vice president and CFO, Steven Sterin stated, “This upgrade by S&P is further evidence of Tesoro’s commitment to maintaining our financial strategy, including a strong balance sheet and credit metrics.

“Tesoro will continue to operate with financial discipline, enabling us to further invest in growth, return cash to shareholders in the form of share repurchases and dividends, and maintain a strong financial position.”

Peers’ credit ratings

Tesoro’s peers Marathon Petroleum (MPC) and Valero Energy (VLO) have S&P long-term issuer ratings of BBB with a stable outlook. However, Phillips 66 (PSX) has the highest credit rating of BBB+.

With the Western Refining acquisition, Tesoro’s leverage position has changed. We’ll explore that topic in the next article.


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