Valero Energy will issue close to $1.5 billion in debt early next year to finance its acquisition of Ultramar Diamond Shamrock Corporation, according to Lee Bailey, v.p. investor relations. Valero thus becomes the latest in a lengthy list of investment-grade energy companies that have announced plans to raise capital via debt offerings to finance acquisitions. Analysts on the buy- and sell-sides say some $8 billion will come to market in the next six months, the largest surge in issuance for a six-month period in roughly four years, according to Mark Pibl, analyst at Barclays Capital. However, Pibl and Paul Tice, an analyst at Deutsche Banc Alex. Brown, say the market will have no trouble digesting the new issuance.
Valero's Bailey expects the acquisition of Ultramar to receive final approval from regulators by Oct. 31. Valero will then take out a $1.5 billion bridge loan, most, it not all, of which will be taken out with the bond offering. He says the company has not yet decided which firm will manage the bond issue, what kind of bond it will be, or what bank it will use for the bridge loan.
Just last Thursday Williams raised $1.5 billion via a two-tranche offering of 7.125% 10-year bonds and 7.875% 20-year notes. Kerr McGee has already announced its intention to issue $1 billion in new paper. Conoco could bring $4 billion early next year, and Devon Energy, which announced its acquisition of Mitchell Energy last week, is expected to come with $1-1.5 billion, according to Deutsche Banc's Tice. Sigmund Cornelius, Conoco's treasurer, and Zack Hager, senior investor relations analyst at Devon, would not discuss the companies' financing plans in detail.
Tice and Pibl point to the success of Amerada Hess' Aug. 8, $2.5 billion four-part offering, a deal that was more than doubled in size, as evidence of the demand for energy paper. The three-, five-,10-, and 30-year notes came at yields of 5.30%, 5.90%, 6.65%, and 7.30% respectively.