Valero $211.5 million 2% mandatory being offered by Orion Refining

By Ronda Fears

Nashville, Oct. 27 - Valero Energy Corp. launched $211.5 million of 2% mandatory convertibles talked with an offering price of $21 to $22 for the $25 par securities, which were originally issued to Orion Refining Corp. to acquire a refinery from the company in its bankruptcy case.

Citigroup and Lehman Brothers are joint lead managers of the offering.

The deal is scheduled to price after the close Tuesday.

In July, Valero issued the mandatory to Orion as part of the payment to purchase the Louisiana refinery for $400 million plus $145 million for inventory and up to $175 million of earn-out payments. Orion is currently in Chapter 11 proceedings.

Although Orion owns $250 million principal amount of the convertibles, only $211.5 million are being sold in the current offering, according to a filing with the Securities and Exchange Commission. Orion will retain the remaining $38.5 million.

The 2% mandatory matures July 1, 2006, and is non-callable. The conversion price has a lower threshold of $37.37 with a 0.6690 conversion ratio, and upper threshold of $50.45 with a conversion ratio of 0.4955.

Valero shares closed Monday up 65c, or 1.65%, to $40.04.

The mandatory does not have any dividend protection features. Valero stock has a 1.22% common dividend yield.

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