CHICAGO--(BUSINESS WIRE)--Fitch Ratings does not anticipate any ratings actions resulting from Valero Energy Corporation's (Valero) announced acquisition of Chevron's 220,000 barrels per day (bpd) Pembroke refinery and related assets in Wales, UK.
Fitch's current ratings for Valero are as follows:
--Issuer Default Rating (IDR) 'BBB';
--Unsecured credit facility 'BBB';
--Senior unsecured debt 'BBB';
--Premcor Refining Group unsecured notes 'BBB'.
The Rating Outlook is Negative
Under proposed terms of the deal, Valero will pay approximately $1.7 billion, comprised of $480 million for the refinery, $250 million for marketing and logistics assets, and $1 billion for working capital and inventories. The transaction is expected to close in the third quarter of 2011, subject to regulatory approvals. In addition to the refinery, Valero will acquire an ownership interest in four major product pipelines, 11 fuel terminals, a 14,000 bpd aviation fuels business, and gain access to a network of more than 1,000 Texaco-branded wholesale sites. The company intends to fund the acquisition with cash.
Valero's liquidity was very strong at Dec. 31, 2010, with cash and equivalents of $3.32 billion, as well as availability across the company's main $2.4 billion revolver, secondary $C115 million revolver, and $1 billion A/R securitization facility of approximately $3 billion, for total liquidity of $6.32 billion. Note these figures exclude Valero's LOC-only facilities. Valero's near-term debt maturities are manageable, and include $818 million due 2011, $759 million due 2012, and $489 million due 2013. The company had ample headroom on its main financial covenant, the maximum net-debt-to-capitalization covenant, which was 25% at year-end 2010 versus a covenant limit of 60%.
The company's other obligations remain manageable. Its asset retirement obligation at YE 2010 was just $101 million and was primarily linked to remediation for underground retail fuel storage tanks. The deficit on the funded status of Valero's Pension Benefit Obligation (FV Pension Assets - PBO) edged up to -$264 million at YE 2010 from -$203 million the year prior. Expected pension contributions for 2011 are $100 million, and pension outflows remain manageable as a percentage of FFO.
Valero's ratings are supported by the size, scale, and the geographic diversity of its refineries, its leverage to heavy and sour crude oil economics; rebounding operational performance and financial metrics; solid financial flexibility; and reasonable leverage. Ratings concerns stem from lingering structural challenges that face North American refiners, including an elevated U.S. unemployment rate; an oversupply of refining global capacity; a growing renewable fuels mandate which will cap future domestic fuel demand growth; and future acquisition risk. The Negative Outlook also reflects concerns that a weak North American recovery and substantially higher global oil prices may slow additional improvement in credit metrics, leaving company metrics somewhat out of category for the 'BBB' rating.
Additional information is available at 'www.fitchratings.com'.
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