New York, June 30, 2022 — Moody’s Investors Service (“Moody’s”) has affirmed the ratings of Delek Logistics Partners, LP (“DKL”), including B1 Corporate Family Rating (CFR), B1-PD Probability of Default Rating and B3 Notes on Existing Senior Unsecured Notes. The speculative grade liquidity rating was downgraded to SGL-3 from SGL-2. The rating outlook is stable.

“The acquisition of 3Bear by Delek Logistics enhances its scale, third-party revenue and exposure to midstream collection and processing businesses in the Delaware Basin,” said James Wilkins, vice president of Moody’s. “The debt financing of the acquisition has increased leverage, but the company expects leverage to decline as 3Bear’s earnings grow rapidly.”

Downgrades:

..Issuer: Delek Logistics Partners, LP

…. Speculative liquidity rating, downgraded to SGL-3 from SGL-2

Statement:

..Issuer: Delek Logistics Partners, LP

…. Classification of the family of companies, confirmed B1

…. Probability of default rating, confirmed B1-PD

….B3 Senior Regular Unsecured Debenture Bond/Debenture (LGD5)

Outlook Actions:

..Issuer: Delek Logistics Partners, LP

….Outlook remains stable

RATINGS RATIONALE

DKL’s B1 CFR reflects increased oil and gas production volumes in the area served by its assets, increased leverage resulting from the debt-financed acquisition of 3Bear, potential benefits of the acquisition as well as the stability of the cash flows of the activities inherited from DKL. The acquisition of 3Bear provides DKL with greater scale and third-party revenue, additional assets in crude oil gathering as well as entry into the natural gas gathering and processing and water treatment businesses salt in the Delaware Basin (Lea and Eddy counties of New Mexico). DKL expects revenue to grow rapidly with development activity in areas where it has land lease agreements with customers, doubling 3Bear’s EBITDA to ~$100m in 2023 from 2021 (multiple of the purchase price of approximately 6.25x 2023E EBITDA). Moody’s expects high commodity prices to spur exploration and production companies to pursue development in the Delaware Basin, however, there are risks to meeting DKL’s projections as each of the lines of he acquired business has a significant concentration of customers, so a change in development plans by a few customers could have a significant impact on the earnings growth of the acquired 3Bear business. Even so, the acquired business is expected to generate positive free cash flow even with the growth capital expenditures needed to increase its ability to meet projected demand over the next two years.

DKL’s former business benefits from stable cash flows supported by long-term fee-based contracts with minimum volume commitments. DKL is strategically important to Delek US Holdings, Inc. (DK, Ba3 Stable), its majority owner and general partner owner, as the MLP provides essential infrastructure, a coordinated growth strategy and a source of external funding. DKL has potential growth opportunities through organic projects as well as acquisitions of assets discontinued by its parent company or from third parties. The company’s earnings increased in 2021, despite lower demand for refined products in a difficult macroeconomic and industrial environment, mainly due to declining assets and were supported by minimum volume commitments.

The rating is limited by the high distributions associated with the MLP model, the modest size of transactions and the risk of customer concentration with DK as its largest customer and its low ability to replace DK’s cash flows in the event of a stoppage. from the refinery. Refining and marketing industry profit margins are volatile, but Moody’s expects demand for refined products to continue to grow and crack spreads to remain robust in 2022.

The speculative grade SGL-3 liquidity rating reflects Moody’s expectation that DKL will maintain adequate liquidity supported by its positive cash flow from operations and unused capacity under its revolving credit facility maturing in 2023. Pro forma for the acquisition and change in terms of Revolver, Revolver had approximately $890 million in borrowings and available borrowing capacity of approximately $110 million as of March 31, 2022. Revolver has three financial commitments – a maximum total leverage ratio of 5.25x and a maximum principal leverage ratio of 3.75x (with 0.25x increase provisions up to four quarters for both leverage ratios for certain growth initiatives eligible) and a minimum interest coverage ratio of 2.0x. Moody’s estimates that the company will remain in compliance with the financial covenants through 2023. The next maturity of the notes is May 2025.

The stable outlook reflects Moody’s expectation that DKL will generate stable earnings and growth through asset acquisitions and modest organic growth projects will not significantly increase leverage.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The rating could be improved if DKL continues to increase its size and increase its EBITDA, while sourcing at least a quarter of its gross margin from third parties, with leverage (debt / EBITDA) below 4 .0x. Additionally, the credit profile of its sponsor, Delek US Holdings, Inc., should support a higher rating for DKL. The ratings could be downgraded if the leverage (debt/EBITDA) were to permanently exceed 5.0x or if the credit profile of its sponsor deteriorated.

Delek Logistics Partners, LP, headquartered in Brentwood, Tennessee, is a midstream logistics company with crude oil and product transportation pipelines and crude oil gathering systems, terminals and storage facilities. Its general partner is 100% owned by Delek US Holdings, Inc. (NYSE: DK) and management, and the common units are owned by DK and public unitholders (21% LP ownership as of March 31, 2022). Its operations largely support the refining operations of its sponsor, DK, which operates four refineries with a combined capacity of 302 mbpd in Texas, Louisiana and Arkansas.

The main methodology used in these ratings is Midstream Energy published in February 2022 and available on https://ratings.moodys.com/api/rmc-documents/379531. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

James Wilkin
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
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Steven Wood
MD – Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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