Fitch Ratings Affirms Valero Energy Corporation.Business Editors CHICAGO--(BUSINESS WIRE)--Oct. 7, 2002 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed Valero Energy Corporation's senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. rating of 'BBB-', the rating of the company's Premium Equity Participating Security Units (PEPS) and Trust Originated Preferred Securities rating of 'BB+' and the company's short term rating of 'F3'. The Rating Outlook for Valero is Stable. The company is currently pursuing an early renewal of its $750 million 364-day credit facility, which matures in December 2002. Fitch expects Valero to complete the renewal of the credit facility sometime in the middle of November. Additionally, Valero announced today that the company has signed a letter of intent with El Paso El Paso (ĕl pă`sō), city (1990 pop. 515,342), seat of El Paso co., extreme W Tex., on the Rio Grande opposite Juárez, Mex.; inc. 1873. Energy Partners to become a 50% partner in the 500,000-barrel per day Cameron Highway Oil Pipeline Project. Based on the current financing plans, Valero's credit ratings will be unaffected by the project. The companies plan to fund the project through permanent project debt financing Debt Financing When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay , which will be non-recourse to the partners. Valero's equity investment beginning in late 2003 is estimated to be approximately $125 million. The 390-mile pipeline will bring crude oil from deepwater Gulf of Mexico Noun 1. Gulf of Mexico - an arm of the Atlantic to the south of the United States and to the east of Mexico Golfo de Mexico Atlantic, Atlantic Ocean - the 2nd largest ocean; separates North and South America on the west from Europe and Africa on the east to refineries in Port Arthur Port Arthur, city, Canada Port Arthur: see Thunder Bay, Ont., Canada. Port Arthur, city, China Port Arthur: see Lüshun, China. and Texas City, Texas and is expected to be in service in the third quarter of 2004. Like other refiners, Valero has been negatively impacted by the poor margin environment this past year. As a result, in late September, Valero's banks agreed to amend the company's credit facilities, reducing the minimum EBITDA-to-cash-interest coverage ratios for the next five quarters, beginning with the 4th quarter of 2002. Valero's credit protection, as measured by EBITDA-to-interest, dropped to 3.4 times (x) for the twelve months ending June 30, 2002 from 10.2x for 2001. Margins, however, have improved recently, including a widening of the spread between sweet and sour sweet and sour adj → agridulce crudes, which is particularly advantageous to Valero. Looking forward, the near-term outlook for the sector appears promising, thanks primarily to improving distillate dis·til·late n. A liquid condensed from vapor in distillation. distillate a product of distillation. fundamentals. According to the forward curve, fourth quarter distillate margins are currently well above historical levels while gasoline margins are higher than at any time in the past eight years. In addition, gasoline and distillate margins for next year are currently pricing above mid-cycle levels on the Gulf Coast and the East Coast. Although Fitch remains comfortable with Valero's current debt ratings, Fitch has concerns with Valero's acquisitive nature. With several refineries currently on the market, Valero is evaluating several opportunities, including the downstream assets of El Paso Corporation. The current margin environment has significantly weakened Valero's credit profile and additional debt would place added negative pressure on the company's balance sheet. If Valero finances a large acquisition (>$500 million) in the next few months primarily with debt, Fitch would likely lower the company's debt ratings. The company has stated, however, that it will not enter into any acquisitions that would jeopardize its investment-grade rating and that any acquisitions would be made with a combination of debt and equity. When Valero acquired UDS UDS Ustedes (Spanish: Formal Plural You) UDS Uniform Data System UDS Unscheduled DNA (Deoxyribonucleic Acid) Synthesis UDS Unix Domain Socket UDS Urodynamics , the company became the largest independent refining company in the United States with a large, complex refining base, solid geographic diversification and significant integration into the retail sector. With this acquisition, Valero's debt levels increased, bringing total balance sheet debt to nearly $5.0 billion at June 30, 2002. The company also has significant off-balance sheet debt, primarily in the form of long-term operating leases, tanker charters and two receivable securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. programs. As the largest independent refiner in North America, Valero owns and operates 12 refineries with the capacity to process 2.0 million barrels per day Barrels per day (abbreviated BPD, bbl/d, bpd, bd or b/d) is a measurement used to describe the amount of crude oil (measured in barrels) produced or consumed by an entity in one day. of crude and other feedstocks. Valero also markets refined products through a retail network of approximately 4,600 Diamond Shamrock, Ultramar, Valero, Beacon and Total outlets. |
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