Western Taps "B" Loan For Refining Co. Acquisition

Western Refining Company's (WRC) new $125 million amortizing "B" loan is bolstered by a cash sweep, which channels 50% excess cash flow toward debt reduction, and a mandatory additional $10 million debt amortization per year requirement, according to Moody's Investors Service. The credit, which will fund the company's acquisition of Chevron USA's El Paso, Texas refinery and associated hydro-carbon inventory, has been assigned a B2 rating. Through a long-term operating agreement, Chevron has been operating WRC's refinery and its own neighboring refinery as one operation since 1993. WRC is looking to run the combined refineries at higher levels of intensity, producing 95,000 barrels per day rather than the 85,000 barrels per day produced under the Chevron operation, and believes that it could exceed historic cash flow patterns with the plan.

Rating restraints include extreme sector cyclicality, substantial debt, WRC's weak diversification due to its single refinery status and the all-debt funded acquisition. Moody's notes that the ratings outlook might be impacted if WRC is unable to reasonably meet its operating goals and reduce debt to levels compatible with potentially rising regional competitive risks. Moody's believes that it is entirely feasible that a competing pipeline could start-up by the second half of 2004, and be able to deliver material volumes into WRC's region.

But WRC has a longstanding regional business position and currently firming sector refining margins. The credit is further buoyed by WRC management's refined product marketing experience and the addition of operating management from the Chevron refinery. In terms of production, Andrew Oram. v.p. and senior credit officer at Moody's, said, "Historically the company has had sufficient product pipeline access to take its production to market. The refinery also appears to have adequate regional crude oil supply for several years to come." WRC also has a $140 million, three-year secured revolver, which is not rated by Moody's.