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Is HollyFrontier’s Debt Position Favorable?

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HollyFrontier’s debt position

HollyFrontier’s (HFC) net debt-to-EBITDA stood at 0.9x in the first quarter—lower than the average industry ratio of 1.5x. The industry average considers six US refining companies. The ratio shows a firm’s net debt level as a multiple of its earnings.

HollyFrontier’s total debt-to-capital ratio stood at 27% in the first quarter—below the industry average of 36%. The ratio shows the percentage of debt in a firm’s capital structure. Marathon Petroleum (MPC), Valero Energy (VLO), and Phillips 66 (PSX) had total debt-to-capital ratios of 39%, 32%, and 30%, respectively, in the first quarter.

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HollyFrontier’s net debt-to-EBITDA trend

HollyFrontier’s (HFC) net debt-to-EBITDA ratio rose from 0.89x in the first quarter of 2018 to 0.93x in the first quarter. The ratio rose due to steeper growth in the net debt than the increase in earnings.

HollyFrontier’s net debt rose 21% YoY to $1.9 billion in the first quarter. HollyFrontier’s net debt rose due to a 37% YoY fall in cash and equivalents and a 2% YoY rise in total debt in the first quarter. HollyFrontier’s cash and debt were $0.5 billion and $2.4 billion in the first quarter.

What does HollyFrontier’s debt position imply?

Both of Holly Frontier’s debt-related ratios are lower than the industry average—a comfortable situation. Usually, everything else being equal, lower ratios signify a healthier debt position and better ability to face tough times.

However, HollyFrontier’s net debt-to-EBITDA ratio has risen in the past year due to acquisition activities, which are aimed at developing a diversified earnings model. Going forward, HollyFrontier will have to carefully assess its growth plans so that they don’t hinder the company’s financial strength and flexibility.

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