Sunoco Logistics Prices $1B Notes - Analyst Blog

On Mar 31, energy pipeline and terminal operator, Sunoco Logistics Partners LP SXL announced the pricing of senior notes worth $1 billion for Sunoco Logistics Partners Operations L.P., its wholly owned subsidiary. The offering is slated for an Apr 3 settlement.

The $300 million senior notes, due to mature in Apr 1, 2024, carry     an interest rate of 4.25%. These 10-year notes were sold at 99.774% of par. The $700 million offering has a maturity date of Apr 1, 2044 and carries an interest rate of 5.30%. These 30-year notes were sold at 99.836% of par value.

The offering is expected to generate about $989 million, which the partnership intends to use to lower debt under its $1.5 billion revolving credit facility and for other general partnership purposes.

Philadelphia-based Sunoco Logistics Partners L.P. is a master limited partnership MLP that acquires, owns, and operates a geographically diverse portfolio of refined product and crude oil pipelines and terminal facilities. The partnership's consistent distribution payment also works in its favor.

However, Sunoco Logistics faces several near-term challenges. The narrowing of crude differentials has adversely affected Sunoco Logistics' crude oil margins and impacted its results. Weak demand for refined products and refinery downtime may present risks to the cash flow estimates and lower the partnership's distribution growth rate. Disappointing earnings results in the past two quarters further add to the worries. The partnership reported a 10.0% negative surprise in the most recently reported quarter and the future does not look too good either.

Sunoco Logistics currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the industry such as Enterprise Products Partners L.P. EPD, Magellan Midstream Partners LP MMP and Spectra Energy Partners, LP SEP. All these stocks currently carry a Zacks #2 (Buy).