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CVR Partners, LP -- Moody's stabilizes CVR Partners' outlook, affirms ratings

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Rating Action: Moody's stabilizes CVR Partners' outlook, affirms ratingsGlobal Credit Research - 13 Apr 2021New York, April 13, 2021 -- Moody's Investors Service, ("Moody's") affirmed all ratings for CVR Partners, LP ("CVR"); including the B2 Corporate Family Rating ("CFR"), its B2-PD probability of default rating and the B2 senior secured notes rating. Moody's also revised the outlook to stable from negative on improved fundamentals in the agricultural sector. Moody's also upgraded CVR's speculative grade liquidity rating to SGL-2 from SGL-3. Affirmations: ..Issuer: CVR Partners, LP .... Corporate Family Rating, Affirmed B2.... Probability of Default Rating, Affirmed B2-PD....Senior Secured Regular Bond/Debenture, Affirmed B2 (LGD4)Upgrades:..Issuer: CVR Partners, LP.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3Outlook Actions:..Issuer: CVR Partners, LP....Outlook, Changed To Stable From NegativeRATINGS RATIONALEThe stable outlook reflects Moody's expectations that credit metrics will improve in 2021 due to higher UAN and ammonia prices amid strong demand for nitrogen fertilizers driven by higher commodity crop prices. We expect higher prices to offset any volume loss from weather-related disruptions in the first quarter and the scheduled turnaround at the Coffeyville plant in the fourth quarter. Moody's expects UAN and ammonia prices to fall from current seasonal highs also driven by unplanned shutdowns and production curtailments, but remain higher year-on-year. Based on these views, Moody's anticipates that CVR's Debt/EBITDA as adjusted by Moody's would likely decline to about 5.6x in 2021 from 7.5x in 2020 and interest coverage would increase to 1.8x from 1.4x, respectively. We expect the company to use the cash in excess of interest and capital expenditures for either distributions, unit repurchases or debt reduction. We expect the company to try to address its upcoming 2023 maturity and high cost capital structure once the bonds become callable at par this June.The B2 corporate family rating reflects CVR's small scale as measured by revenues, concentration of earnings in two production facilities, Coffeyville, Kansas and East Dubuque, Illinois, as well as Moody's expectations that its facilities will demonstrate consistent and efficient operations. CVR also benefits from its geographic footprint with access to the Corn belt, through the East Dubuque site location, as well as the Southern plains, via the Union Pacific and BNSF rail lines from the Coffeyville site. Despite having only two production sites, CVR benefits from its back integration into ammonia production and diversity of supply though the Coffeyville facility faces higher costs when the Coffeyville refinery cannot fully supply its feedstock needs and depends on the ultimate viability of the refinery. . Concentration of sales in commodity nitrogen fertilizers, limited growth prospects, seasonality and exposure to adverse weather are constraining factors for the rating. Also reflected in its rating is CVR's structure as a variable rate master limited partnership (MLP), which typically distributes all available free cash flows to unitholders, but given the variable nature of the MLP, management has control over the size of the distributions and has suspended them during downturns.CVR's SGL-2 speculative grade liquidity rating indicates expectations of good liquidity through 2021, supported by cash balances, projected operating cash generation and availability under its $35 million ABL revolver due on September 30, 2022. The company had $31 million of cash on hand as of December 31, 2020, including about $7.6 million of customer advances and about $20 million availability under its revolver, which is subject to borrowing base limitations. The revolver was undrawn as of December 31, 2020. We do not expect the company to use the revolver, with the exception of possible support for seasonal working capital needs. Working capital usage is typically highest in the second and fourth calendar quarter. The company is projected to generate cash after covering roughly $60 million in interest and $20-$25 million in capex and may use excess cash for distributions or unit repurchases. The revolver has a springing fixed charge coverage ratio of 1.0x if availability falls below 10% or $5 million and we do not expect the covenant to be tested. The company has a small stub maturity in 2021, which it will be able to cover from cash on hand. The partnership's 9.25% $645 million senior secured notes are due June 15, 2023 and contain no financial covenants, but do contain various covenants and leverage tests for MLP distributions, incremental debt, and other restrictions. We expect the company to address the note maturity extension in a timely manner. All assets are encumbered by the revolver and the notes.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects expectations of improving credit metrics and cash flow generation in 2021 amid higher crop prices and stronger demand for fertilizers. The stable outlook also reflects expectations that the company will address the upcoming 2023 maturity in a timely manner and will start using free cash flow to reduce debt, resulting in a capital structure that positions the company more solidly in the B2 category.A rating upgrade is remote at this time, given the company's small scale, limited operational diversity and the fixed capital structure, which will result in weak metrics during the trough of the cycle. We will consider an upgrade if the company lowers debt, such that leverage is sustained under 4.5x Debt/EBITDA, profitability improves and the company continues to prudently manage liquidity.Moody's could downgrade the rating if the company does not address its 2023 bond maturity in a timely manner and does not demonstrate debt reduction to place it more firmly within the B2 rating category. Moody's also could downgrade if the rating EBITDA no longer covers interest and liquidity deteriorates such that free cash flow is persistently negative and CVR's cash balance declines below $20 million. We could also downgrade the rating if unplanned outages become an ongoing issue for the company and if there are significant changes in its key raw material supplier Coffeyville refinery.As a commodity chemicals manufacturer, we view CVR as having high environmental credit risks and high social credit risks because its operations could have a negative impact on local communities. Moody's believes the company has established expertise in complying with environmental regulations dealing with production of hazardous substances and air and water emissions and has incorporated procedures to address them in its operational planning and business models. CVR currently utilizing nitrous oxide abatement and carbon dioxide (CO2) sequestration technologies to mitigate over 1mm metric tons of CO2 equivalents per year and is seeking to benefit from various opportunities related to lowering its greenhouse gas emissions, such as qualifying for tax credits under Section 45Q aimed at encouraging CO2 sequestration. CVR has moderate governance credit risk due to concentrated ownership, variable distribution master limited partnership structure (MLP) and shareholder friendly financial policies.The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.CVR, a Delaware limited partnership headquartered in Sugar Land, Texas, is a producer of nitrogen fertilizer products, principally Ammonia and UAN. CVR is a public variable distribution master limited partnership (ticker: UAN) which is 36% owned by CVR Energy Inc., a publicly traded company 71% owned and controlled by Carl C. Icahn through Icahn Enterprises L.P. CVR has two operating facilities located in Coffeyville, Kansas and East Dubuque, Illinois. CVR had revenues of $350 million for the twelve months ending December 31, 2020.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Anastasija Johnson VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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