Sunoco L.P.

The stable outlook reflects our belief that Sunoco will continue to maintain stable wholesale fuel distribution operations while scaling its storage and transportation revenues adding to cash flow stability. We believe Sunoco's adjusted debt to EBITDA could be in the 4.5x-5.0x range, and distribution coverage will be in the 1.2x area over the next 12 months. We could lower the rating if operational performance were weaker than expected, such that adjusted debt to EBITDA was sustained at or above 5.5x, with no clear path to improvement. This could occur from increased market competition in the wholesale business, significant demand destruction related to COVID-19, or if the partnership pursues midstream acquisitions through leveraging transactions. We could raise the ratings if Sunoco

...We believe the demand destruction from COVID-19, if the pandemic is prolonged into the second half of 2020, could significantly harm Sunoco's wholesale fuel gallons sold. We think this will only be partly offset by margin expansion as the price of refined products falls. While the volume of distributed fuels is hard to forecast, we think a decline of 10%-15% is possible if demand doesn't recover into the third or fourth quarter of 2020. The scale of Sunoco's fuel distributions, allows the partnership to procure fuel at attractive cost levels. We view Sunoco's wholesale fuels distribution business as having considerable economies of scale and providing a relatively stable cash flow stream that will account for about 70% of Sunoco's gross profit. Sunoco has one of the largest wholesale fuel logistics platforms in the U.S., suppling fuel to about 10,000 convenience stores, independent dealers, commercial customers, and distributors across more than 30 states located mainly along the Eastern...

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