Valero Energy Partners L.P. Rating Raised To 'BBB' And Withdrawn Following Merger With Valero Energy Corp. Subsidiary

  • Valero Energy Corp. (Valero) has completed the merger between one of its wholly owned subsidiaries and Valero Energy Partners L.P. (VLP), pursuant to which Valero acquired all of VLP's outstanding common units that Valero and its subsidiaries did not already own.
  • We raised our long-term issuer credit rating and senior unsecured issue-level ratings on VLP to 'BBB' from 'BBB-' and removed them from CreditWatch, where we placed them with positive implications on Oct. 22, 2018. We then withdrew the issuer credit rating at the issuer's request.
  • As part of the merger agreement, Valero has guaranteed the partnership's senior unsecured notes due 2026 and 2028.
  • The stable outlook on Valero reflects our expectation that the company will maintain strong liquidity and adjusted debt to EBITDA in the 1.00x-1.25x range for 2019 and 2020. We also believe Valero will maintain adjusted leverage below 2.5x in a mid-cycle refining margin environment.
NEW YORK (S&P Global Ratings) Jan. 11, 2019--S&P Global Ratings today took the 
rating actions listed above. The rating actions follow Valero Energy Corp.'s 
(Valero's) announcement that it has completed the merger between Valero Energy 
Partners L.P. (VLP) and one of its wholly owned subsidiaries. We view VLP as a 
core subsidiary of Valero and therefore rate the debt in line with the parent. 
Valero also has issued an unconditional and irrevocable payment guarantee of 
the partnership's $500 million 4.375% senior unsecured notes due 2026 and $500 
million 4.50% unsecured notes due 2028. The merger does not change our 
analytical approach to the parent, because we've always consolidated VLP when 
assessing Valero's credit profile. We expect Valero's consolidated debt to 
EBITDA to be in the low-1x area for 2019.

The stable outlook on Valero reflects our expectation that the company will 
maintain strong liquidity and adjusted debt to EBITDA in the 1.00x-1.25x range 
for 2019 and 2020. We also believe Valero will maintain adjusted leverage 
below 2.5x in a mid-cycle refining margin environment.

A downgrade of Valero would result in a downgrade of the partnership's 
guaranteed notes. We could consider lowering the rating on Valero if adjusted 
debt to EBITDA is sustained above 3x under mid-cycle pricing conditions.

Although unlikely due to the refining industry's inherent volatility, we could 
consider a higher rating if Valero significantly diversifies its asset base 
into stable EBITDA-producing assets while maintaining current credit metrics.