Valero cuts some Covid debt via tender, has $432 million left to pay

By Devika Patel

Knoxville, Tenn., Oct. 26 – Valero Energy Corp. further reduced its debt by $1.25 billion in September through tender offers to purchase notes from 11 series.

This transaction and a series of debt reduction and refinancing transactions completed since the second half of 2021 have collectively reduced Valero’s debt by approximately $3.6 billion.

Despite this large reduction, the company still has about $432 million of Covid pandemic debt left to repay, and management plans further deleveraging going forward.

“Our strong balance sheet remains a cornerstone of our capital allocation framework,” chairman and chief executive officer Joseph W. Gorder said on the company’s third quarter ended Sept. 30 earnings conference call on Tuesday.

“In the third quarter, we reduced our debt by an additional $1.25 billion, bringing our total debt reduction to approximately $3.6 billion since incurring $4 billion of incremental debt during the height of the pandemic in 2020, and we will continue to further evaluate deleveraging opportunities going forward,” Gorder said.

“We’re still working on paying down our Covid debt,” executive vice president and chief financial officer Jason W. Fraser said on the call.

“We have about $432 million left to have paid off the full $4 billion after accounting for the tender offer we did in this third quarter,” Fraser said.

Valero ended the third quarter of 2022 with $9.6 billion of total debt and $4 billion of cash and cash equivalents, compared to $13 billion of total debt and $2.3 billion of cash and cash equivalents at the end of the first quarter of 2021.

On Sept. 12, the company announced the early results and pricing of its Aug. 26 tender offers to purchase for cash up to a maximum aggregate principal amount of notes from 11 series, subject to acceptance priority levels and series tender caps.

Valero also increased the maximum aggregate principal amount for the offers to $1.25 billion from $1 billion, according to a Monday morning press release.

The company planned to accept for purchase the following notes tendered as of 5 p.m. ET on Sept. 9, the early tender date, listed in order of acceptance priority level and with the total consideration per $1,000 principal amount:

• All $48,439,000 tendered of the $252,075,000 outstanding 3.65% senior notes due 2025 (Cusip: 91913YAS9) at $989.10, with pricing based on the 3.125% U.S. Treasury due Aug. 15, 2025 plus a fixed spread of 55 basis points;

• All $290,658,000 tendered of the $542,869,000 outstanding 2.85% senior notes due 2025 (Cusip: 91913YAY6) at $969.28, with pricing based on the 3.125% U.S. Treasury due Aug. 15, 2025 plus a fixed spread of 55 bps;

• All $166,465,000 tendered of the $597,411,000 outstanding 3.4% senior notes due 2026 (Cusip: 91913YAU4) at $974.67, with pricing based on the 3.125% U.S. Treasury due Aug. 31, 2027 plus a fixed spread of 70 bps;

• All $61,663,000 tendered of the $207,672,000 outstanding 4.375% senior notes due 2026 (Cusip: 91914JAA0) issued by Valero Energy Partners LP and guaranteed by Valero at $1,003.02, with pricing based on the 3.125% U.S. Treasury due Aug. 31, 2027 plus a fixed spread of 90 bps;

• All $551,726,000 tendered of the $1 billion outstanding 4% senior notes due 2029 (Cusip: 91913YAW0) at $961.72, with pricing based on the 2.75% U.S. Treasury due Aug. 15, 2032 plus a fixed spread of 140 bps; and

• $131,049,000 of the $415.43 million tendered of the $750 million outstanding 4.35% senior notes due 2028 (Cusip: 91913YAV2) at $961.72, with pricing based on the 3.125% U.S. Treasury due Aug. 31, 2027 plus a fixed spread of 110 bps. The notes will be accepted with a proration factor of about 31.7%.

The total consideration included an early tender payment of $30 per $1,000 principal amount of notes tendered by the early tender date.

The company also paid accrued interest to but excluding the applicable settlement date.

Pricing was calculated at 10 a.m. ET on Sept. 12.

Because the offers were oversubscribed as of the early tender date, the company did not accept for purchase any notes from the remaining five series, which had a lower acceptance priority than the six series above.

The other five series included the $500 million outstanding 4.5% senior notes due 2028 (Cusip: 91914JAB8) issued by Valero Energy Partners and guaranteed by Valero; $600 million outstanding 2.15% senior notes due 2027 (Cusip: 91913YBB5); $1.5 billion outstanding 6.625% senior notes due 2037 (Cusip: 91913YAL4), subject to a $150 million series tender cap; $650 million outstanding 4.9% senior notes due 2045 (Cusip: 91913YAT7); and $750 million outstanding 7.5% senior notes due 2032 (Cusip: 91913YAE0), subject to a $100 million series tender cap.

The offer expired at midnight ET at the end of Sept. 23. However, because the offers were fully subscribed as of the early tender date, holders tendering their notes after the early deadline did not have any of their notes accepted for purchase.

Early settlement was Sept. 13, and final settlement was slated for Sept. 27.

San Antonio-based Valero is an oil refinery owner and operator.

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