TEXT-S&P cuts Big West Oil LLC

(The following statement was released by the rating agency)

Dec 23 - Standard & Poor's Ratings Services said today that it lowered its corporate credit rating on Big West Oil LLC to 'D' from 'B+'. At the same time, Standard & Poor's lowered its rating on the company's $400 million term loan B to 'D' from 'BB'.

The recovery rating on Big West's $400 million term loan B remains a '1', reflecting Standard & Poor's expectation that the term loan lenders will receive a very high (90% to 100%) final recovery on their claim at the end of the insolvency process.

The downgrades follow the announcement that privately held Flying J Inc. (unrated), parent of Big West, has filed petitions to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

The Chapter 11 filing includes Flying J subsidiaries Big West and Longhorn Pipeline (unrated). Rapidly declining oil prices initiated a systemic demand for liquidity to meet working capital needs, which cascaded through Flying J and ultimately, Big West.

The swift decline in oil prices quickly reduced borrowing base availability under Longhorn Pipeline's revolving credit facility, which increased working capital requirements and strained Flying J's liquidity. While Big West's margins, cash flow, availability under its $200 million revolver, and end markets supported the rating, the rapid decline of liquidity at the other entities resulted in a violation of the intercompany loan covenant at Big West's revolver, which restricted further borrowings.

"Our comfort in maintaining the '1' recovery rating on the term loan reflects the term lender's first-lien on Big West's fixed assets and second-lien on its working capital assets, as well as the limited draw on the company's first-lien working capital revolving facility at default," said Standard & Poor's credit analyst Paul Harvey.

Based on this capital structure, we estimate that the term lenders would achieve a recovery of 90% of their claim should Big West be valued at emergence from bankruptcy at a minimum of $4,400 per barrel of throughput capacity. Big West Oil is a small, refining and marketing company with 101,000 barrels per day rated throughput capacity at two refineries in Bakersfield, Calif. and Salt Lake City, Utah.

Big West markets its product through wholesale markets as well as through sales to Flying J's retail network.