Moody's affirms Valero Logistics

Moody's Investors Service said it affirmed the Baa3 senior unsecured bond ratings of Valero Logistics Operations LP and Kaneb Pipe Line Operating Partnership LP with a stable outlook after Valero Energy Corp.'s announcement that it plans to complete an initial public offering of about 37% of its indirect ownership interest in Valero GP Holdings LLC and that following the IPO, it intends to ultimately divest all of its ownership interest in Valero GP.

Assuming Valero completes its planned divestiture of all of its interests in Valero GP and Valero LP, Moody's said it believes the credit quality of the consolidated entity will remain consistent with a Baa3 rating, as the group maintains a strong market position in oil and refined product pipelines and terminals, benefits from diversification, generates stable cash flows from regulated pipeline transportation tariffs and has volume and tariff commitments and environmental indemnifications from Valero that will remain in place.

At the same time, the group remains tied to refinery operating performance and maintenance turnarounds and to the cyclical/seasonal demand for crude oil and refined products, the agency said and it remains exposed to the relatively lower-return terminal business and the risk that new pipelines and terminals could raise competitive pressures over the medium term.

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