Fitch rates
This new issuance, along with cash on hand, will be used to redeem CVI's outstanding
Key Rating Drivers
Fitch currently rates CVI's Issuer Default Rating 'BB-' with a Stable Rating Outlook. The rating reflects the company's medium-sized operations, an average complexity rating of 10.8, and relatively low operating costs. The company (excluding non-recourse
These factors are offset by the company's relatively small size, exposure to volatile crack spreads and oil differentials, and historically, high shareholder distributions. The Nitrogen Fertilizer segment is non-recourse, although it can be a source of cash at times through its approximately 37% ownership and corresponding distributions.
Adequate Liquidity: Fitch believes CVI has adequate liquidity, with cash on hand of
Fitch expects CVI to continue to generate positive FCF over the forecast as refinery economics gradually moderate to pre-pandemic levels.
Strong 2022 Results: North American refiners experienced blockbuster 2022 results, driven by record crack spreads, with NYMEX 2-1-1 and Group 3 2-1-1 spreads in the
Cautious Macroeconomic Outlook: Fitch remains cautious given refining remains one of the most cyclical corporate sectors, and is subject to periods of boom and bust, with sharp swings in crack spreads over the cycle. In addition to cyclical challenges, the sector is also facing secular challenges with the growth of electric vehicles, which could reduce demand for refined hydrocarbons.
Challenging Regulatory Environment: Fitch believes CVI's renewable identification numbers (RINs) obligations will be manageable in the near term. RIN prices remained elevated throughout 2022 but have moderated considerably in the second half of 2023. CVI reduced its RIN exposure through increased biofuel blending and renewable diesel production following the completion of its renewable diesel project in
In previous years,
CVI can return the unit to hydrocarbon processing if the margin differential between renewables and hydrocarbons changes. CVI is also building a pre-treatment unit for processing raw soybean oil, corn oil and animal fats that would reduce the premium paid for pre-treated feedstocks and potentially lower the carbon intensity, generating higher LCFS credit values. The company identified similar renewable opportunities at its
Size and Regional Concentration: CVI's ratings reflect the business risk associated with its medium-sized operations and location concentration. Its combined crude oil processing capacity is 206,500bpd, with an average complexity of 10.8, and its plants are located in Group 3 of PADD II. The company's two refineries are strategically located near
Derivation Summary
CVI's ratings reflect its status as a medium-sized Mid-Continent complex refiner with two refineries and approximately 206,500bpd of nameplate capacity. The company's refining capacity is smaller than peers
The company's refining asset quality is strong and advantaged in several ways. Geographically with a concentration of price-advantaged capacity in the Mid-Continent and operationally with flexibility to take advantage of light, heavy and sour crude. CVI also has a strong logistics system that allows the company to easily transport and store crude oil and refined products.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Greater earnings diversification and scale, or evidence of lower cash flow volatility;
Reduced exposure to environmental and regulatory obligations due to increased focus on renewables;
Midcycle EBITDA leverage at or below 2.0x.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Material reduction in liquidity over a sustained period;
A disproportionate increase in dividends or a share-repurchase program that leads to a material reduction in liquidity;
Midcycle EBITDA leverage over approximately 3.0x;
Material regulatory changes that can potentially reduce earnings.
Liquidity and Debt Structure
Sufficient Near-Term Liquidity: CVI (excluding
Fitch believes that existing liquidity should allow CVI to support operational and debt obligations in the near term with the expectation that continued improved refining economics will provide more than adequate liquidity over the forecasted time horizon.
Refinancing risk reduces with the proposed 8.50% 2029 note issuance as funds will be used to repay the 2025 notes. Following the repayment, the next maturity is the 2028 notes.
Issuer Profile
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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