Fitch Affirms NuStar's Ratings at 'BB'; Outlook Stable

Fitch Ratings affirms the 'BB' Issuer Default Rating (IDR) and senior unsecured rating for NuStar Logistics, L.P.'s (Logistics). The junior subordinated notes are affirmed at 'B+'. At the same time, the 'BB' IDR is withdrawn for NuStar Pipe Line Operating Partnership, L.P. (NPOP) since there is no longer debt issued at NPOP.

Debt issued by Logistics is guaranteed by NuStar Energy L.P. (NuStar) and NPOP. Both Logistics and NPOP are the operating limited partnerships of NuStar, which is a publicly traded master limited partnership.

The Outlook is Stable based on expectations that EBITDA growth resumes following significant deterioration in 2012 and that cash flow should be more stable than in the recent past.

KEY RATING DRIVERS

The 'BB' rating is supported by NuStar's strong base of primarily fee-based and regulated pipeline, and terminalling and storage assets. These assets accounted for 80% of segment EBITDA in 2011 and Fitch estimates the assets could account for approximately 95% of EBITDA in 2013 and 2014. The company sold 50% of its asphalt operations in September 2012 and closed on the sale of its San Antonio refinery in January 2013. Both of these assets generated volatile cash flows.

NuStar has been in discussions with its asphalt operations JV partner to divest the remaining 50% stake it owns. NuStar currently provides the JV with a $250 million senior unsecured revolver and up to $150 million in guarantees. Should NuStar successfully divest its 50% stake and financial obligations to the JV, it would benefit NuStar's credit profile but would not likely trigger a rating action.

Other factors which support the rating include expectations a return to EBITDA growth in 2013 and beyond after significant deterioration in 2012. In 2013, EBITDA growth from the transportation segment is expected to more than offset weakness in the storage segment which has been hurt by lower demand for storage due to backwardation of the forward curve for crude.

Ratings concerns include the company's leverage (Fitch defined as debt adjusted for 50% equity credit for the junior subordinated notes to adjusted EBITDA) of 4.9x as of Sept. 30, 2013. Other concerns include continued high levels of spending for capex in 2013 and expectations for significant spending in 2014. Following NuStar's acquisition of crude oil assets in December 2012 for approximately $325 million, the company plans to invest in the assets for growth.

LIQUIDITY AND LEVERAGE

Fitch estimates overall liquidity to be approximately $485 million as of Sept. 30, 2013. The company had $25 million of cash and equivalents on the balance sheet. In addition, it has a $1.5 billion revolver due 2017 and availability to draw on the revolver is restricted by the leverage covenant as defined by the bank agreement. Fitch estimates that NuStar had availability to draw approximately $460 million since leverage as defined by the bank agreement was 4.3x as of Sept. 30, 2013. Revolver borrowings were $286 million.

Leverage as defined by the bank agreement is to be no greater than 5.0x for covenant compliance. However, if NuStar makes acquisitions which exceed $50 million, the bank-defined leverage ratio increases to 5.5x from 5.0x for two consecutive quarters.

The bank agreement definition of debt excludes debt proceeds held in escrow for the future funding of construction which was $88 million as of Sept. 30, 2013 and $403 million of junior subordinated debt from the definition of debt. The bank-defined leverage calculation also gives pro forma credit for EBITDA for material projects.

Fitch still expects yearend 2013 leverage (Fitch defined as debt adjusted for 50% equity credit for the junior subordinated notes to adjusted EBITDA) to be in the range of 4.8 - 5.0x. Leverage is forecast to remain in that range in 2014 and 2015.

After the revolver matures in 2017, the next debt maturity is $350 million due in 2018.

CAPITAL EXPENDITURES

Capital expenditures remain significant. In 2011, total capex was $336 million and it rose to $411 million in 2012. Management estimates it to be in the range of $335 million to $370 million in 2013. Fitch believes spending in 2014 could be above 2013 given NuStar's need to increase EBITDA and distributable cash flow.

RATINGS SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

--Significant leverage reduction. Should leverage fall below 4.5x over a sustained period of time, Fitch may take positive rating action.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Reduced liquidity;

--Deterioration of EBITDA;

--Inability to meet growth expectations associated with the crude oil acquisition in late 2012 given the substantial investment;

--Significant increases in capital spending beyond Fitch's expectations or further acquisition activity which have negative consequences for the credit profile;

--Increased adjusted leverage beyond 5.5x for a sustained period of time.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Relevant Research:

--'2014 Outlook: Crude Oil and Refined Products Pipelines', Dec. 10, 2013;

--'Credit Considerations for the GP/LP Relationship', Nov. 6, 2013;

--'Investor FAQs: Recent Questions on the Pipeline, Midstream, and MLP Sectors' (Aug. 5, 2013);

--'Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs' (April 18, 2013);

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);

--'Treatment and Notching of Hybrids in Nonfinancial Corporates and REIT Credit Analysis' (Dec. 23, 2013).

Applicable Criteria and Related Research:

2014 Outlook: Crude Oil and Refined Products Pipelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726461

Credit Considerations for the GP/LP Relationship

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721999

Investor FAQs: Recent Questions on the Pipeline, Midstream, and MLP Sectors

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715517

Tax Event Risk and MLPs: Assessing a Change in Tax Status for MLPs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705496

Corporate Rating Methodology - Effective from 8 August 2012 - 5 August 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis ???" Effective Dec. 15, 2011 to Dec. 13, 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656516

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814141

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