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Murphy Oil USA Inc. -- Moody's assigns a Baa3 to Murphy Oil USA's planned bank credit facility

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Rating Action: Moody's assigns a Baa3 to Murphy Oil USA's planned bank credit facility

Global Credit Research - 15 Jan 2021

New York, January 15, 2021 -- Moody's Investors Service, ("Moody's") assigned a Baa3 rating to Murphy Oil USA Inc.'s ("MUSA") planned $750 million bank credit facility. At the same time Moody's affirmed MUSA's other ratings including its Ba1 corporate family rating, Ba1-PD probability of default rating, and Ba2 senior unsecured rating. The company's speculative grade liquidity rating of SGL-1 remains unchanged. Shortly after the launch of this bank credit facility, MUSA will launch a $500 million senior unsecured note issuance which is being assigned a Ba2. The outlook remains stable.

Proceeds from the bank credit facility -- which consists of a $350 million 5-year senior secured revolver and $400 million 7-year senior secured term loan B -- along with the $500 million 10-year senior unsecured note issuance will be used to finance the recently announced acquisition of QuickChek Corporation, refinance its existing credit facility, pay fees and expenses and put about $26 million of cash on the balance sheet. MUSA announced the $645 million acquisition of QuickChek's 157 locations on December 14, 2020.

"The affirmation of MUSA's existing ratings reflects the company's strong metrics, which will remain appropriate for the Ba1 rating when factoring in the acquisition, its very good liquidity and the positive attributes of the QuickChek acquisition", stated Pete Trombetta, Moody's Vice President -- Senior Analyst. "The acquisition gives MUSA a presence in the desirable New Jersey/New York region in the US where it is difficult to open new fuel locations due to environmental regulations and QuickChek's fresh food offering will enable MUSA to begin the process of improving the offerings at its existing locations", added Trombetta.

Assignments:

..Issuer: Murphy Oil USA Inc.

....Senior Secured Term Loan, Assigned Baa3 (LGD2)

....Senior Secured Revolving Credit Facility, Assigned Baa3 (LGD2)

....Senior Unsecured Regular Bond/Debenture, Assigned Ba2 (LGD5)

Affirmations:

..Issuer: Murphy Oil USA Inc.

.... Probability of Default Rating, Affirmed Ba1-PD

.... Corporate Family Rating, Affirmed Ba1

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 (LGD5)

Outlook Actions:

..Issuer: Murphy Oil USA Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

MUSA's credit profile benefits from its strong credit metrics -- which Moody's expects will remain appropriate for the Ba1 rating category following the acquisition -- its very good liquidity, meaningful scale, good market position and geographic reach, and our opinion that consumer demand for motor fuel and value priced convenience items will retain some degree of stability regardless of economic conditions. We expect the company's credit metrics to remain consistent with its Ba1 rating category and in line with its debt/EBITDA (as reported) target of 2.5 times, even during times of volatile earnings. The company is constrained by its exposure to revenue and earnings volatility related to motor fuel sales which account for a substantial majority of the company's revenue and the company's low merchandise margins, relative to rated peers.

The stable outlook reflects the integration risk associated with the QuickChek acquisition as well as our view that the company will continue to look at acquisitions as a part of its growth strategy.

The Baa3 rating assigned to the $750 million senior secured bank credit facility -- one notch above the Ba1 CFR -- reflects the support from the significant amount of junior ranking debt and non-debt liabilities to these facilities, including unsecured notes. The Ba2 rating on the company's unsecured debt reflects its junior position to the significant amount of 1st lien senior secured bank debt.

The credit facilities are expected to contain covenant flexibility for transactions that could adversely affect creditors, including: incremental facility capacity up to: (x) the greater of 100% of Adjusted EBITDA at close and 100% of Adjusted EBITDA, calculated on a pro forma basis, for the most recently ended four fiscal quarter period plus (y) an additional amount such as (i) the First Lien Leverage Ratio does not exceed 3.75 times (for pari passu first lien debt); or (ii) the Secured Leverage Ratio does not exceed 3.75 times (for junior secured indebtedness); and (iii) either the Total Leverage Ratio does not exceed 4.50x or the Fixed Charge Coverage Ratio is not lower than 2.00 times (for unsecured indebtedness). Alternatively, all of the above ratios may be satisfied as long as the leverage (coverage) does not increase (decrease) if incurred in connection with a permitted acquisition or investment. A sublimit of the incremental (amount to be agreed) will be permitted to be incurred with an earlier maturity date than the term loans. Only wholly-owned subsidiaries must act as subsidiary guarantors, raising the risk that guarantees may be released following a partial change in ownership. The credit facilities provide the ability to make restricted payments, investments and certain prepayments through a builder basket equal to the greater of a to be determined amount and 10% of Consolidated Net Tangible Assets plus (b) either (i) 50% of cumulative Consolidated Net Income or (ii) 100% of cumulative retained "excess cash flow" plus (c) other customary additions; provided that the use of clauses (b) and (c) of the builder basket will be subject to absence of a continuing default and compliance with a Fixed Charge Coverage Ratio of 2.00 to 1.00. Step downs in the asset sale prepayment requirement to 50% and 0% if the First Lien Leverage Ratio is equal to or less than 3.25x and 2.75x, respectively and excluding amounts reinvested within 12 months (subject to extension to 18 months).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade would require a balanced growth strategy and the financial policy and capital structure that supports the credit profile required of an investment grade rating. An upgrade would also require very good liquidity, increased product diversification to lower its reliance on fuel sales and increase its higher margin merchandise revenues. Quantitatively, an upgrade would require debt/EBITDA maintained below 2.5 times and EBIT/interest sustained near 5.5 times. Deterioration in operating performance resulting in weakening of liquidity or credit metrics could result in a downgrade. A growth strategy that negatively impacts liquidity or metrics could also pressure ratings. Specifically, ratings could be downgraded if debt/EBITDA is sustained above 3.5 times and EBIT/interest is sustained below 4.0 times.

Murphy Oil USA Inc. is the primary operating subsidiary of Murphy USA Inc., and mainly sells retail motor fuel products and convenience merchandise through a total of nearly 1,500 retail stations, almost all of which are located close to Walmart stores. The company's retail stations are located in 25 states, primarily in the Southeast, Southwest, and Midwest United States. Revenues were about $11.9 billion for the last 12 month period ended September 30, 2020.

The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For 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.

Peter Trombetta Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Margaret Taylor Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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