VLP IPO Preview Dec 2013

Valero Energy Partners, LP (ticker VLP) is currently out on its IPO roadshow and looking to raise $300 million by selling 15 million common units (before the over-allotment) at a mid-point price of $20 with an indicated mid-point yield of 4.25%. They expect to price the deal Tuesday December 10.

VLP is a fee-based, growth-oriented, traditional master limited partnership recently formed by Valero Energy Corporation (“Valero”, VLO) to own, operate, develop and acquire crude oil and  refined petroleum products pipelines, terminals and other transportation and logistics assets. VLP will serve as Valero’s primary vehicle to expand the transportation and logistics assets supporting its business. VLP’s initial assets consist of crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States (“U.S.”) that are integral to the operations of Valero’s refinery located in Port Arthur, Texas, its McKee refinery located in Sunray, Texas, and its refinery located in Memphis, Tennessee.

VLP generates revenue by charging tariffs and fees for transporting crude oil and refined petroleum products through its pipelines and terminals. Because they do not take ownership of or receive any payments based on the value of the crude oil or refined petroleum products that they handle and do not engage in the trading of any commodities, VLP has no direct exposure to commodity price fluctuations.

IMPORTANT: VLP will provide investors with a K-1 (instead of a 1099-DIV), which makes VLP appropriate for taxable accounts. Here is the key language from the “Tax Risks” section of the Prospectus (page 43) telling you that it does not really belong in an IRA (or any tax advantaged account):

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file federal income tax returns and pay tax on their share of our taxable income. Any tax-exempt entity or non-U.S. person should consult a tax advisor before investing in our common units.

Monthly Analytics subscribers, please keep an eye on your inbox for full analytics on VLP.

About Philip Trinder

President of MLP Protocol, investor, trader, and proponent of Master Limited Partnerships.
This entry was posted in MLP IPO Review, Roadshow Slides and tagged , , , , , , , , , . Bookmark the permalink.

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