Tesoro (TSO) Signs New Credit Agreement Worth $2 Billion
Zacks Investment Research | Oct 03, 2016 11:04PM ET
Tesoro Corporation (NYSE:TSO) recently declared that it has signed a senior secured revolving credit accord with a group of banks, headed by JPMorgan Chase & Co. (NYSE:JPM) .
Tesoro will now replace its prior $3 billion asset based credit facility with the new $2.0 billion, four-year cash flow credit facility. The previous facility was scheduled to mature in Nov 2019, while the new facility will mature in Sep 2020.
Notably, the $2 billion credit facility can be expanded up to $2.25 billion before the company achieves an investment grade rating. The facility can be expanded to $3 billion after the company receives the rating.
The new credit facility is expected to enhance Tesoro’s financial flexibility substantially and help it achieve growth objectives. Tesoro added that this new facility has taken it closer to investment grade rating.
San Antonio, TX-based Tesoro is one the largest independent oil refiners in the U.S. A major advantage for the company is the scale and diversification benefits offered by its seven refineries. We also appreciate the company’s solid long-term competitive position and are optimistic about its prospects in the supply constrained California market.
However, the requirement of policies to reformulate fuel and lower emission from refinery operations make the industry a highly regulated one. As a result, companies like Tesoro are often forced to divert cash flows to ensure regulatory compliance, which can adversely impact profitability.
As a result, the company currently carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.
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