Reiterate Outperform: We reiterate our OP rating on NRGY following the announcement of its amended credit agreement. In our view, the announcement is an incremental positive as it removes concerns surrounding the company’s liquidity. Furthermore, the amendment displays its lenders’ belief in the sustainability of NRGY’s underlying cash flows. We remain confident in our $1.40/unit distribution estimate and continue to believe the NRGY’s value will become apparent following the distribution cut.
Amended Credit Agreement Relieves Liquidity Constraint: NRGY’s amended credit agreement enables the company to accelerate the deleveraging process. NRGY has the ability to raise ~$300mm in cash via the dropdown of US Salt (~$200mm) to Inergy Midstream (NRGM) and the sale of up to 5mm NRGM units (~$100mm). Furthermore, NRGY has the ability to use up to 50% of the proceeds of these potential sales to tender for a portion of its long-term debt (details on amendments inside).
Reducing 2Q12 Estimates: We’ve reduced our 2Q12 estimates to reflect lower retail propane gallons sold owing to the warmer than forecast weather. Our estimates have changed as follows: EBITDA decreased $15mm (14.3%) to $90mm, DCF/unit decreased $0.11/unit (15.1%) to $0.64/unit and our distribution/unit estimate remains unchanged at $0.35/unit ($1.40/unit annualized).