San Antonio-based
Tesoro Corporation
(
TSO
) recently announced that it will be offering $925 million of
senior unsecured notes. The offering is divided into two parts -
$450 million 4 1/4% senior notes due 2017 and $475 million 5 3/8%
senior notes due 2022.
Tesoro will be using the net proceeds from the offering along with
available cash to repurchase all of its outstanding 6 5/8% senior
notes due 2015 and 6 1/2% senior notes due 2017. The remaining
proceeds, if any, will be used for general corporate purposes, such
as funding the retirement of outstanding tender offer notes,
working capital, capital expenditure, and the refinancing or
repayment of debt.
Tesoro expects the proceedings to be complete on September 27,
2012, subject to customary closing conditions.
Tesoro Corporation ended the second quarter of 2012 with long-term
borrowings of $1,350 million. The debt-to-capital ratio was 23.4%
at the quarter end. With the issuance of $925 million of debt, the
debt-to-capital ratio will increase to 34.0%.
We also expect interest expenses to increase with the sale of the
new notes.
The company is involved in a number of high-return projects that
are expected to be cost effective. These projects will not only
boost the company's competitive position among its peer group, but
will also provide significant earnings and cash flow growth
visibility.
Following a hiatus of more than two years, Tesoro has recently
reinstated its dividend payout. The company also announced a $500
million share repurchase program. We believe that the resumption of
dividend and the buyback authorization not only highlights Tesoro's
commitment to create value for shareholders but also underlines the
company's confidence in its future earnings momentum.
Additionally, a major advantage for the company is the scale and
diversification benefits afforded by its portfolio of seven
refineries. Recently, in a bid to form the largest U.S.
oil-refining realm in the Pacific Basin, Tesoro Corporation has
agreed to acquire Carson refinery and associated business units
from London-based
BP plc
(
BP
).
Overall, we believe Tesoro is well positioned going forward and
view it as an attractive investment.
We maintain our long-term Outperform recommendation, supported by a
Zacks #1 Rank (short-term Strong Buy rating).
BP PLC (BP): Free Stock Analysis Report
TESORO CORP (TSO): Free Stock Analysis Report
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