Fitch drops Kaneb

Fitch Ratings said it lowered ratings for Kaneb Pipe Line Operating Partnership, LP's outstanding $500 million senior unsecured notes to BBB- from BBB+ and removed them from Rating Watch negative, where they were placed on Nov. 1, 2004 following the announcement that agreements had been executed to merge Valero LP and Kaneb Pipe Line Partners, LP.

The outlook is stable.

The action reflects the post-merger structure under which Kaneb, along with Valero Logistics Operations, LP, will be the primary operating partnerships for Valero LP, the general partner of the combined partnership will be owned by affiliates of Valero Energy Corp. (BBB-, watch negative) and the partnership will retain the name of Valero LP, Fitch said.

As part of the transaction, Valero LP will acquire the equity of Kaneb Services LLC, owner of Kaneb's general partner, for $525 million, the agency noted.

On a consolidated basis, Fitch said it expects Valero LP to generate credit ratios that are consistent with the BBB- rating. Under a reasonable post-acquisition base case, 2006 debt to EBITDA is expected to be 4.0 times or below.

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