Valero Energy Partners LP (VLP), a master limited partnership formed by Valero to develop its transportation and logistics assets, plans to raise $300 million in its upcoming IPO on December 11th. The San Antonio, Texas-based firm will offer 15.0 million shares at an expected price range of $19-$21 per share. If the IPO can reach the midpoint of that range at $20 per share, VLP will command a market value of $1.2 billion. See S-1.
VLP filed on September 19, 2013.
Lead Underwriters: Barclays Capital Inc, J.P. Morgan Securities LLC
Underwriters: Citigroup Global Markets Inc, Credit Agricole Securities, Credit Suisse Securities LLC, Jefferies LLC, Mitsubishi UFJ Securities, Mizuho Securities USA Inc, RBC Capital Markets LLC, RBS Securities Inc, Scotia Capital Markets, SunTrust Robinson Humphrey Inc, Wells Fargo Securities LLC.
VLP is a fee-based master limited partnership formed by Valero to expand its transportation and logistics assets, including crude oil and refined petroleum products pipelines, terminals and other assets. Valero is the world's largest independent refiner, as well as a manufacturer and marketer of fuels and other petrochemical products with a total feedstock throughput capacity exceeding three million barrels per day.
VLP will own and operate pipeline and terminal systems that service Valero's refineries located in Port Arthur, Texas; Sunray, Texas; and Memphis, Tennessee, and will generate income by charging for the use of those systems.
VLP offers the following figures in its S-1 balance sheet for the nine months ending September 30, 2013:
Net Income: $38,057,000
Total Assets: $267,174,000
Total Liabilities: $6,571,000
Stockholders' Equity: $260,603,000
VLP plans to pay minimum quarterly distributions of $0.2125 per unit, or $0.85 annually. These payments are subject to the firm having sufficient available cash for distribution. If the firm does make full payments, they would equate to a 4.25% annual yield on units purchased at the midpoint of the expected IPO price range of $20.
VLP should have a steady source of revenue through the master services agreements that it will enter into with Valero after the completion of its IPO. The fee-based agreements will comprise the whole of the firm's initial revenues and will include minimum quarterly throughput commitments and initial terms of ten years.
Though VLP is not directly exposed to shifts in the price of petroleum, it certainly will be affected by Valero's production habits, which in turn will be affected by the price of petroleum.
VLP is managed by the board of directors and executive officers of its general partner, Valero Energy Partners GP LLC. Joseph W. Gorder is CEO and a director of Valero Energy Partners GP LLC, and was appointed as such in September 2013. Mr. Gorder has been with Valero for 26 years, and is currently President and COO of Valero, responsible for refining operations and commercial operations in marketing, supply and transportation. He previously served in several other executive roles with Valero.
We rate this IPO a buy in the proposed price range of $19 to $21.
VLP should offer a stable investment; the firm is profitable, and will be able to easily maintain that status through its ten year initial agreements with Valero, as described above under "Business." That said, growth will likely be minimal, as the firm likely will not aim to do more than serve the interests of Valero's established Gulf and Mid-Continental facilities. The 4.25% yield is hardly the best of its kind, although the firm will likely be able to meet the relatively small commitment consistently.