Fitch downgrades Delek US Holdings to B+ on higher leverage

Investing.com -- Fitch Ratings has downgraded Delek U.S. Holdings, Inc.’s Issuer Default Rating (IDR) to ’B+’ from ’BB-’ while maintaining a Stable outlook, the rating agency announced Friday.

The downgrade reflects elevated leverage, increased business risk following the divestiture of Delek’s retail business, and lack of meaningful debt repayment from asset sales proceeds.

Fitch affirmed Delek’s ABL issue rating at ’BB+’ with a Recovery Rating of ’RR1’ and downgraded the term loan issue rating to ’BB-’/’RR3’ from ’BB+’/’RR2’.

The company’s Fitch-calculated consolidated EBITDA leverage rose to 20.5x in 2024 amid weak refining conditions. While crack spreads have partially recovered, crude spreads remain somewhat compressed.

Delek operates 302,000 barrels per day (bbl/d) of refining capacity, positioning it larger than ’B’ rated peers CVR Energy (NYSE:CVI) (207,000 bbl/d) and Par Pacific Holdings (NYSE:PARR) (219,000 bbl/d), but smaller than higher-rated competitors.

The rating agency noted that Delek’s refinery complexity is lower than peers, with Nelson Complexity Index ratings ranging from 8.7-10.5, though this is offset by access to low-cost Permian and regional crudes.

Liquidity remains adequate with $624 million in cash and $717 million of revolver availability as of March 2025. The company’s 62.6% ownership stake in Delek Logistics (NYSE:DKL) Partners provides additional financial flexibility.

Fitch views the sale of Delek’s retail business and subsequent purchases of water handling and gas processing assets as increasing cash flow volatility, as these new assets carry more variable performance with volume risk compared to the more stable retail operations.

U.S. refiners face regulatory headwinds, including the Environmental Protection Agency’s denial of small refinery exemption petitions that Delek historically received. Litigation regarding these exemptions is ongoing.

Fitch forecasts that Delek’s leverage will improve from 2024 levels but remain elevated, with consolidated leverage expected to stay above 5x throughout the forecast period.

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