Analysis of Debt
Total Debt (Carrying Amount)
Valero Energy Corp., balance sheet: debt
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
The total carrying amount of debt and finance lease obligations exhibited a significant increase between 2019 and 2020, followed by a consistent downward trend through 2023. Total obligations rose from 9,672 million US$ in 2019 to a peak of 14,677 million US$ in 2020, before declining to 11,524 million US$ by the end of 2023.
- Long-Term Debt Obligations
- The non-current portion of debt and finance lease obligations peaked in 2020 at 13,954 million US$. Since that peak, a steady reduction has been observed, with the balance falling to 10,118 million US$ by December 31, 2023. This indicates a sustained effort to reduce long-term leverage over the three years following the 2020 increase.
- Short-Term Debt Obligations
- The current portion of debt and finance lease obligations shows an overall upward trajectory, increasing from 494 million US$ in 2019 to 1,406 million US$ in 2023. While there was a slight decrease in 2022, the current portion has grown significantly over the five-year period, suggesting an increase in the amount of debt maturing within the short term.
- Debt Maturity Profile Shift
- An analysis of the debt composition reveals a shift toward short-term liabilities. In 2019, the current portion represented approximately 5.1% of total debt. By 2023, this figure increased to approximately 12.2% of the total carrying amount. This shift implies a higher concentration of immediate repayment obligations relative to the total debt structure.
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Total Debt (Fair Value)
| Dec 31, 2023 | |
|---|---|
| Selected Financial Data (US$ in millions) | |
| Debt, excluding finance lease obligations | 9,109) |
| Finance lease obligations | 2,306) |
| Total debt and finance lease obligations, including current portion (fair value) | 11,415) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 0.99 |
Based on: 10-K (reporting date: 2023-12-31).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt and finance lease obligations: 4.80%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 1.20% | 167) | 2) | |
| 2.85% | 251) | 7) | |
| 3.65% | 189) | 7) | |
| 3.40% | 426) | 14) | |
| 2.15% | 564) | 12) | |
| 4.35% | 591) | 26) | |
| 4.00% | 439) | 18) | |
| 8.75% | 200) | 18) | |
| 2.80% | 462) | 13) | |
| 7.50% | 729) | 55) | |
| 6.63% | 1,380) | 91) | |
| 6.75% | 24) | 2) | |
| 10.50% | 113) | 12) | |
| 4.90% | 621) | 30) | |
| 3.65% | 829) | 30) | |
| 4.00% | 508) | 20) | |
| 7.45% | 70) | 5) | |
| 4.38% | 146) | 6) | |
| 4.50% | 456) | 21) | |
| 7.65% | 100) | 8) | |
| 4.80% | 2,306) | 111) | |
| Total | 10,571) | 507) | |
| 4.80% | |||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Weighted-average interest rate = 100 × 507 ÷ 10,571 = 4.80%
Interest Costs Incurred
Valero Energy Corp., interest costs incurred
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
Total interest and debt expenses experienced a notable increase between 2019 and 2020, rising from 544 million to 638 million US$. Following this surge, total expenses reached a peak of 651 million in 2021 before entering a period of relative stabilization, ending at 611 million by December 31, 2023.
- Net Interest and Debt Expense Trends
- Interest and debt expense, net of capitalized interest, showed a significant upward trajectory from 2019 to 2021, increasing from 454 million to 603 million US$. While a reduction to 562 million occurred in 2022, the value recovered to 592 million in 2023, reflecting a general increase in the immediate cost of debt servicing compared to the 2019 baseline.
- Capitalized Interest Analysis
- A consistent downward trend is observed in capitalized interest, which fell from 90 million in 2019 to 19 million in 2023. The most acute decline occurred between 2022 and 2023, where capitalized interest decreased by approximately 67%. This pattern suggests a reduction in the volume or scale of qualifying capital expenditure projects during the analyzed period.
- Shift in Expense Recognition
- There is a clear shift in the composition of interest costs. In 2019, capitalized interest accounted for approximately 16.5% of total interest and debt expenses. By 2023, this proportion declined to approximately 3.1%. This indicates that a significantly larger share of total interest costs is now being recognized as a period expense rather than being capitalized into the cost of long-term assets.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
2023 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest and debt expense, net of capitalized interest
= 12,360 ÷ 592 = 20.88
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest and debt expense
= 12,360 ÷ 611 = 20.23
The analysis of debt servicing capacity between 2019 and 2023 reveals a period of extreme volatility followed by a substantial strengthening of the company's ability to meet interest obligations. A critical inflection point occurred in 2020, where both coverage metrics turned negative, indicating that earnings were insufficient to cover interest expenses. However, this downturn was followed by a rapid recovery and a significant expansion of the coverage margin through 2022 and 2023.
- Adjusted Interest Coverage Ratio (with capitalized interest)
- This metric exhibited a severe contraction from 7.24 in 2019 to -2.27 in 2020. A recovery began in 2021 as the ratio rose to 3.30, followed by a sharp escalation to a peak of 25.64 in 2022. While the ratio moderated to 20.23 by the end of 2023, it remains substantially higher than pre-2020 levels, indicating a significantly improved margin of safety for debt obligations.
- Interest Coverage Ratio (without capitalized interest)
- The non-adjusted ratio followed an identical trend trajectory, dropping from 8.68 in 2019 to -2.57 in 2020. The subsequent rebound reached 3.56 in 2021 and peaked at 28.24 in 2022, before settling at 20.88 in 2023. The consistently higher values of this ratio compared to the adjusted version highlight the impact of capitalized interest on the overall debt-servicing profile.
- Comparative Trend Analysis
- A consistent gap is maintained between the two ratios throughout the five-year period, with the adjusted ratio remaining lower. This suggests that capitalized interest represents a persistent additive burden on the company's interest obligations. The convergence of these ratios toward extremely high values in 2022 and 2023 demonstrates a period of exceptional profitability relative to the cost of debt, effectively mitigating the solvency risks observed during the 2020 fiscal year.
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