Valero (VLO) is on of the leading energy refiners in the world, has been around forever and is a stable, well run company. This deal is for an LP servicing arm, Valero Energy Partners (VLP). The highlight of the deal is a proposed yield of just over 4% at the $20 mid-point of the proposed price range.
The initial assets of the LP consist of three clusters of pipeline and storage facilities. Over time there may be additional drop downs of assets from VLO to VLP which would create further growth. Six additional assets are described in the roadshow on which VLP has a right of first offer to purchase for the next 5 years.
The distributable cash per unit of $0.85 flows from an estimate of $58.9M of EBITDA after adjustments, mainly for maintenance capital expenditures.
It’s not clear or known which additional assets will be added to the portfolio or at what prices so for now the $0.85 dividend is all that there is to go on. If the IPO price is low enough the shares may be attractive on that basis but this deal will be well marketed and Valero is well known so great pricing is not likely.
VLP has some tax advantages for taxable accounts that are worth considering although most of the time we think about these yield names for tax-free portfolios. For deeper analysis we’d defer to an MLP specialist.
We’ve added the Valero Energy Partners VLP IPO Slidedeck to the archive.
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