Fitch revises PBF Holding’s outlook to negative, maintains ’BB’ rating

Investing.com -- Fitch Ratings has revised the outlook for PBF Holding Company LLC (PBFH) from stable to negative, citing increased structural gross debt and potential liquidity strains. Despite the negative outlook, Fitch affirmed the company’s Long-Term Issuer Default Rating at ’BB’. The agency also assigned an ’BB’ issue-level rating with a Recovery Rating of ’RR4’ to the company’s new proposed senior unsecured notes.

The revision in outlook reflects concerns about PBFH’s less conservative financial policy and short-term leverage increase. These worries are compounded by potential further liquidity strains caused by uncertainty in the refining market and the fallout from the Martinez fire.

Fitch noted key factors impacting the rating, including PBFH’s strong geographic diversification and its effective strategy to manage Renewable Identification Number (RIN) liabilities. However, the company’s minimal non-refining diversification, volatile refining sector conditions, potential impact of tariffs on refining margins, and a cost structure higher than its peers, offset these factors.

The agency expressed concern over the increased structural gross debt resulting from the unsecured notes transaction. Fitch forecasts PBFH’s EBITDA leverage to remain outside of sensitivities through the medium term. The agency acknowledged the company’s steps to improve its liquidity position and management’s positive statements about reducing gross debt when market conditions improve.

The February fire at the Martinez refinery presents significant operational challenges to PBFH. The company expects the refinery to be fully operational in Q4 2025. This inability to capitalize on the summer driving season will reduce PBFH’s cash flow generation for 2025.

PBFH’s refineries have a higher cost structure compared to peers, which has historically led to underperformance and larger cash flow deficits during industry downturns. Margins declined significantly through 2024, with some improvement expected in early 2025.

Fitch expects somewhat elevated capex in 2025 due to several turnarounds and the fire at the Martinez refinery. PBF Energy (NYSE:PBF) is expected to maintain stable dividends, supported by adequate funds generated by PBF Logistics (NYSE:PBFX). Management indicated that reducing leverage will be prioritized over shareholder returns when the company observes improved cash generation.

PBFH’s obligations related to RINs and California’s cap-and-trade program are considered manageable in the near term. The company aims for a RIN turnover cycle of two to four months and benefits from purchasing RINs from the St. Bernard JV.

PBFH has a nameplate throughput capacity of 1,023 mbbl/d, comparing favorably to peers Delek US Holdings (NYSE:DK), Inc. (BB-/Stable) with 302 mbbl/d and CVR Energy (NYSE:CVI), Inc. (B+/Stable) with 207 mbbl/d. PBFH’s refining operations are geographically well diversified with operations in PADDs I, II, III, and V.

As of Dec. 31, 2024, PBFH had $515 million in cash on hand. Its asset-based revolving credit facility of $3.5 billion is expected to be undrawn following the close of the unsecured notes transaction. The company has senior unsecured notes that mature in 2028 and 2030, in addition to the new proposed senior unsecured notes. Its revolving credit facility matures in 2028.

PBF Holding Company LLC owns and operates oil refineries and related assets with a combined throughput capacity of 1,023,000 barrels per day. The company’s refineries are geographically diversified with refineries in PADD I, PADD II, PADD III, and PADD V.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.