Moody's downgrades Sunoco

Moody's Investors Service said it downgraded Sunoco Inc.'s long-term debt rating to Baa3 from Baa2 and its commercial paper rating to Prime-3 from Prime-2.

The outlook remains negative.

The agency said the downgrade reflects weak refined product demand and margin conditions in Sunoco's core refining and supply business, its reduced scale and operational diversification as it restructures operations and its exposure as primarily a light crude refiner subject to volatile margins and product imports in its core Northeastern U.S. markets.

The Baa3 rating continues to be supported by the more than $1 billion in cash expected to be realized in 2010 as well as the potential for modest free cash flow, all of which will facilitate debt reduction and enhance liquidity, Moody's said. The company also benefits from strong brand positioning in highly competitive Northeast U.S. markets and earnings and cash flow diversification from its coke operations and its controlling interest in Sunoco Logistics Partners LP, the agency said.

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