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Investing.com -- Fitch Ratings downgraded Delek Logistics Partners, LP’s (NYSE:DKL) Issuer Default Rating to ’B+’ from ’BB-’ on Friday, while maintaining a Stable outlook.
The rating agency also downgraded the unsecured debt co-issued by DKL and Delek Logistics Finance Corp. to ’B+’ from ’BB-’ with a Recovery Rating of ’RR4’.
This downgrade follows the recent downgrade of parent company Delek US Holdings (NYSE:DK) to ’B+’ with a Stable outlook. According to Fitch, DKL no longer receives a one-notch uplift from its relationship with the parent as both entities now have the same Standalone Credit Profile (SCP).
Fitch noted that DKL’s rating is supported by its location-advantaged assets in the Permian Basin, growing scale, and efforts to diversify its customer base and service offerings. These positive factors are balanced against high distribution requirements, elevated capital needs, and business risks associated with acquired assets.
The rating agency projects that DKL’s leverage will remain between 4.5x and 5x throughout its forecast period, with Distribution Coverage staying modestly above 1x. Fitch does not expect significant leverage reduction in the near term through internally generated free cash flow or the recently approved $150 million share buyback authorization.
Delek US Holdings remains DKL’s largest counterparty, accounting for approximately 55% of DKL’s net revenues and 37% of gross margin as of 2024. While customer concentration risk is expected to decrease due to higher third-party EBITDA, the partnership maintains significant exposure to non-investment grade and unrated counterparties.
Fitch’s key assumptions include WTI oil prices of $60 per barrel through 2027 and $57 per barrel thereafter, one refinery turnaround each year, and $150 million in share buybacks over the 2025-2026 period.
For a potential upgrade, DKL would need to demonstrate an ability to maintain EBITDA leverage at or below 4.0x, along with a favorable rating action for Delek US Holdings.
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