Moody's downgrades oil refiner to junk status

Moody's yesterday downgraded petroleum refiner Sunoco to junk status, lowering its rating from Baa3 to Ba1. The downgrade reflects Sunoco's smaller scale and diversification, as well as continuing transition risk as it assesses its refining operations and reviews options for its cash, says Moody's.

Sunoco has reduced its crude refining capacity by about 45% over the past few years, which has seen it reduce costs but at the expense of also giving up scale and regional diversification, says Moodys, as the firm's remaining operations are now concentrated in the highly competitive northeast US market.

Notably, Moody's also points to Sunoco's current $1.3 billion revolver loan that matures in August 2012, stating that the investment grade terms of that facility are likely to change when the company seeks a replacement facility next year.