S&P ups Valero outlook to stable

Standard & Poor's said it affirmed Valero Energy Corp.'s BBB- corporate credit rating, BBB- senior unsecured debt rating, BB preferred stock rating and BBB- bank loan rating.

The outlook was revised to stable from negative.

The outlook revision reflects the rapid progress Valero has made in repaying debt incurred in its acquisition of Premcor Inc. in September. Incredibly high crack spreads in September and October, sparked by widespread refinery outages related to Hurricanes Katrina and Rita, allowed Valero to generate exceptionally strong cash flow in a short period and accelerate debt reduction, the agency said.

The ratings reflect a strong business profile characterized by Valero's position as the largest refiner in the United States, above-average refining complexity which allows it to process a large amount of attractively priced heavy and sour crudes and concentration in key refining markets such as the Gulf Coast, the Northeast and California.

Offsetting these strengths is an aggressive financial policy, high capital-spending needs through 2007, a history of large debt-financed acquisitions and the company's participation in the volatile and fiercely competitive refining industry, S&P said.

Valero's adjusted debt to normalized EBITDA is about 2.5x, after adjusting for off-balance-sheet liabilities and post-retirement obligations.

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