Fitch rates Valero notes BBB

Fitch Ratings said it assigned a BBB rating to Valero Energy Corp. issuance of $1.25 billion of five- and 10-year senior unsecured notes.

The issuer default rating, unsecured credit facility, senior unsecured debt and Premcor Refining Group unsecured notes at BBB.

The outlook is negative.

Proceeds will be used for general corporate purposes, including but not limited to refinancing debt, funding capital expenditures and funding working capital requirements.

Fitch said that a portion of proceeds will be used to call about $472 million in debt outstanding in the first part of 2010, including $185 million of 6.75% Premcor notes due 2014 and $287 million of 7.5% Premcor notes due 2015, resulting in an expected net increase in Valero's debt of approximately $750 million after the refinancing.

Heightened M&A event risk is also a concern across the sector, the agency said.

The debt-to-EBITDA ratio at Sept. 30, 2009 was 2.8 times but is set to erode sharply in 2010 due to the impact of stronger quarters rolling off and being replaced with much weaker ones, as well as higher debt levels, Fitch said.

Ratings are supported by the size, scale and the geographic diversity of its refineries, its leverage to heavy and sour crude oil economics, and reasonable financial leverage, the agency said.

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