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NuStar's Subsidiary Prices Notes

NS VLO

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NuStar Logistics, L.P., a subsidiary of publicly traded energy master limited partnership NuStar Energy L.P. (NS - Analyst Report), declared pricing of 7.625% fixed-to-floating rate subordinated notes due 2043 worth $350 million. NuStar offered a 30-day option to underwriters to purchase additional notes worth $52.5 million by exercising their full over-allotment option.

The public offering, excluding underwriter allotment, will fetch approximately $340.6 million. The net proceeds from this offering will be utilized by the partnership to reduce debt under its revolving credit facility and for other partnership purposes. NuStar may re-borrow the same to pay for a part of the purchase price of TexStar NGL assets or growth capital related to the TexStar Midstream Services LP acquisition.

NuStar expects the proceedings to be complete on January 22, 2013, subject to the fulfillment of customary closing conditions.

San Antonio, Texas-based NuStar Energy engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K. The company has three business segments: Storage, Transportation and Asphalt and Fuels Marketing.

NuStar, which was spun off from the U.S. refiner Valero Energy Corp. (VLO - Analyst Report) in 2006, currently retains a Zacks Rank #3 (Hold).

Over the last few years, NuStar has consolidated its business through a combination of organic efforts and accretive acquisitions. However, we believe the higher operating expenses associated with this expanded asset base may lead to reduced returns going forward.

We also remain concerned about NuStar's high debt levels, which leave the partnership vulnerable to an extended downturn. As of September 30, 2012, NuStar had long-term debt (including current portion) of more than $2 billion, representing a debt-to-capitalization ratio of around 43%.

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