Moody's ups Valero to stable

Moody's Investors Service said it changed Valero Energy Corp.'s outlook to stable from negative and affirmed Valero's existing Baa2 senior note ratings.

The stabilization in the rating outlook reflects the expectation that Valero's cash flow will remain strong over the near-term due to rising industrial activity pushing modest growth in demand for distillates and the expectation of supportive light/heavy spreads, the agency said.

The stable outlook also reflects the assumption that Valero will maintain investment grade leverage metrics over the next 12-18 months as it continues to pursue organic growth and acquisition opportunities, the agency added.

Valero's Baa2 ratings are supported by its large operating scale, solid diversification of unplanned downtime risk and regional margin risk within its 14 refinery portfolio, comparatively high process complexity, material earnings contribution from its retail and ethanol operations, investment-grade financial leverage metrics and good liquidity, Moody's said.

The ratings are restrained by inherent refining sector cyclicality and volatility, heavy capital spending levels, acquisition event risk and the uncertainties regarding the ultimate impact of the regulation of greenhouse gases in California, the agency noted.

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