Moody's rates Calumet Lubricants loans B2

Moody's Investors Service said it assigned a B2 rating to the pending $175 million senior secured term loan due 2012 and the $50 million pre-funded senior secured letter-of-credit facility for Calumet Lubricants Co. LP. Moody's said it also assigned a corporate family rating of B2 with a developing outlook.

Proceeds from the term loan will be used to refinance $175 million of existing debt including debt owed to Calumet's shareholders, and the LoC facility will support collateral requirements for a portion of its hedging program.

The ratings reflect the inherent volatility of the refining business, the company's high leverage, small scale and lack of regional diversification of its operations, the projected long-term decline in demand for some of Calumet's specialty products and management's decision to adopt a more aggressive corporate finance strategy that is not compatible to the refining business model, the agency said.

Moody's said the ratings are supported by the company's niche market position, the flexibility it has in modifying its product slate, credit agreement controls which requires debt reduction with excess cash flows, much of required capital spending to meet environmental regulations is behind the company and the timely use of hedging which thus far has enabled the company to protect cash flows despite weak consolidated operating earnings.

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