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NuStar Energy L.P. Message Board

  • motoamr motoamr Nov 22, 2008 9:08 AM Flag

    NuStar @RBC MLP conferenc, Nov 19-21, Part I (of 2 parts)

    I just finished listening to a Friday panel at the RBC MLP conference (moderated by the RBC managing director Joe Cunningham of the RBC managing investment banking group), where NuStar's CEO Curt Anastasio was one of the speakers. I would encourage all who follow NuStar and invest in the MLP sector to follow the link and go through the conference

    http://www.wsw.com/webcast/rbc94/panel12/

    Below is a recount of what the panelists said. There are first comments about the MLP sector in general and how the market perceives it at this point, followed up by the remarks specific to NuStar Energy.

    Before I start, let me just say that I strongly believe this is a unique opportunity to buy a great business (NuStar, of course) and make ton of money within a year or two through a very hefty distribution and unit appreciation that will eventually come as a result of obvious but ignored business growth.

    General comments on the MLP sector, market perception, etc.:

    All agreed that the MLP sector is being trashed to ridiculous price levels as the market fears that the MLPs won't be able to maintain the high levels of distribution that presently prevail (some distros are in the 20%). While there is plenty of capital available, a number of capital projects that started several years ago are now being executed at a much higher cost. Hence, some of the existing upgrade projects are at risk. Also, fewer new projects are started as the companies are cutting on capital intensive projects due to higher cost and companies’ needs to pay down debt, have cash available etc.

    ---- End of Part I ----

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    • Yes, I agree with the 23% cap as the maximum for the incentive portion as a percentage of the distributable cash.

      Thanks for posting the info related to the subordination period/conditions. Need to look more into that.

    • DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS AFTER THE SUBORDINATION
      PERIOD

      We will make distributions of available cash from operating surplus for any
      quarter after the subordination period as follows:

      - First, 98% to the unitholders, pro rata, and 2% to the general partner,
      until we have distributed for each outstanding unit an amount equal to
      the minimum quarterly distribution of $0.60 for that quarter;

      - Second, 90% to all unitholders, pro rata, 8% to the holders of the
      incentive distribution rights, and 2% to the general partner, until we
      have distributed for each outstanding unit a total amount of $0.66 for
      that quarter;

      - Third, 75% to all unitholders, pro rata, 23% to the holders of the
      incentive distribution rights, and 2% to the general partner, until we
      have distributed for each outstanding unit a total amount of $0.90 for
      that quarter; and

      - Thereafter, 50% to all unitholders, pro rata, 48% to the holders of the
      incentive distribution rights, and 2% to the general partner.

      TABULAR ILLUSTRATION OF DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS

      The following table illustrates the amount of available cash from operating
      surplus that would be distributed on a yearly basis to the unitholders and the
      general partner at each of the target distribution levels. This table is based
      on the 8,924,322 common units and the 9,599,322 subordinated units to be
      outstanding immediately after the offering and assumes that there are no
      arrearages in payment of the minimum quarterly distribution on the common units.
      The "Marginal Percentage" columns under "Yearly Distributions" in the table
      below show the percentage interest of the unitholders and the general partner in
      available cash from operating surplus that would be distributed on a yearly
      basis between the indicated target distribution levels. The "Amount" columns
      under "Yearly Distributions" in the table below show the cumulative amount

      35
      <PAGE> 41

      that would be distributed on a yearly basis to the unitholders and the general
      partner if available cash from operating surplus equaled the indicated target
      distribution level.

      <TABLE>
      <CAPTION>
      YEARLY DISTRIBUTIONS
      ---------------------------------------------------
      UNITHOLDERS GENERAL PARTNER
      QUARTERLY ------------------------ ------------------------
      AMOUNT PER AMOUNT MARGINAL AMOUNT MARGINAL
      TARGET DISTRIBUTION UNIT (THOUSANDS) PERCENTAGE (THOUSANDS) PERCENTAGE
      ------------------- ---------- ----------- ---------- ----------- ----------
      <S> <C> <C> <C> <C> <C>
      Minimum Quarterly
      Distribution............... $ 0.60 $ 44,456 98% $ 908 2%
      First Target Distribution.... 0.66 48,902 90% 1,401 10%
      Second Target Distribution... 0.90 66,685 75% 7,329 25%
      Thereafter................... above 0.90 -- 50% -- 50%
      </TABLE>

      The amounts and percentages shown under "Yearly Distributions -- General
      Partner" include its combined 2% general partner interest and the general
      partner's incentive distribution rights. The amounts and percentages shown under
      "Yearly Distributions -- Unitholders" include amounts distributable on both the
      common units and the subordinated units.

    • DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS DURING THE SUBORDINATION
      PERIOD

      We will make distributions of available cash from operating surplus for any
      quarter during the subordination period as follows:

      - First, 98% to the common unitholders, pro rata, and 2% to the general
      partner, until we have distributed for each outstanding common unit an
      amount equal to the minimum quarterly distribution of $0.60 for that
      quarter;

      34
      <PAGE> 40

      - Second, 98% to the common unitholders, pro rata, and 2% to the general
      partner, until we have distributed for each outstanding common unit an
      amount equal to any arrearages in payment of the minimum quarterly
      distribution on the common units for any prior quarters during the
      subordination period;

      - Third, 98% to the subordinated unitholders, pro rata, and 2% to the
      general partner, until we have distributed for each outstanding
      subordinated unit an amount equal to the minimum quarterly distribution
      of $0.60 for that quarter;

      - Fourth, 90% to all unitholders, pro rata, 8% to the holders of the
      incentive distribution rights, and 2% to the general partner, until we
      have distributed for each unit a total amount of $0.66 (the "first target
      distribution") for that quarter;

      - Fifth, 75% to all unitholders, pro rata, 23% to the holders of the
      incentive distribution rights, and 2% to the general partner, until we
      have distributed for each unit a total amount of $0.90 (the "second
      target distribution") for that quarter; and

      - Thereafter, 50% to all unitholders, pro rata, 48% to the holders of the
      incentive distribution rights, and 2% to the general partner.

      In each case, the amount of the target distribution set forth above
      excludes any distributions to common unitholders to eliminate any cumulative
      arrearages in payment of the minimum quarterly distribution on the common units.

    • 23% incentive is durning subordination period when distribution over $.90 then moves to 50% after subordination period when distribution is over $.90. Currently in subordination period

      SUBORDINATION PERIOD
      General. During the subordination period, which is defined below, the
      common units will have the right to receive distributions of available cash from
      operating surplus in an amount equal to the minimum quarterly distribution of
      $0.60 per quarter, plus any arrearages in the payment of the minimum quarterly
      distribution on the common units from prior quarters, before any distributions
      of available cash from operating surplus may be made on the subordinated
      units. The purpose of the subordinated units is to increase the likelihood that
      during the subordination period there will be cash available to be distributed
      on the common units.

      Definition of Subordination Period. The subordination period is defined in
      the glossary and will extend until the first day of any quarter beginning after
      March 31, 2006 that each of the following tests are met:

      - distributions of available cash from operating surplus on each of the
      outstanding common units and subordinated units equaled or exceeded the
      minimum quarterly distribution for each of the three consecutive,
      non-overlapping four-quarter periods immediately preceding that date;

      - the "adjusted operating surplus" generated during each of the three
      immediately preceding non-overlapping four-quarter periods equaled or
      exceeded the sum of the minimum quarterly distributions on all of the
      outstanding common units and subordinated units during those periods on a
      fully diluted basis and the related distribution on the 2% general
      partner interest during those periods; and

      - there are no arrearages in payment of the minimum quarterly distribution
      on the common units.

      If the unitholders remove the general partner without cause, the
      subordination period may end before March 31, 2006.

      Definition of Adjusted Operating Surplus. "Adjusted operating surplus" for
      any period generally means:

      - operating surplus generated during that period, less

      - any net increase in working capital borrowings during that period, less

      - any net reduction in cash reserves for operating expenditures during that
      period not relating to an operating expenditure made during that period,
      plus

      - any net decrease in working capital borrowings during that period, plus

      - any net increase in cash reserves for operating expenditures during that
      period required by any debt agreement for the repayment of principal,
      interest or premium.

      Generally speaking, adjusted operating surplus is intended to reflect the
      cash generated from operations during a particular period and therefore excludes
      net increases in working capital borrowings and net drawdowns of reserves of
      cash generated in prior periods.

      Effect of Expiration of the Subordination Period. Upon expiration of the
      subordination period, each outstanding subordinated unit will convert into one
      common unit and will then participate pro rata with the other common units in
      distributions of available cash. In addition, if the unitholders remove our
      general partner other than for cause and units held by the general partner and
      its affiliates are not voted in favor of that removal, the subordination period
      will end, any then-existing arrearages on the common units will terminate, and
      each subordinated unit will immediately convert into one common unit.

    • 10K defined incentive as a maximum 23% of diistibutions and also said distributions are currently at maximum of 23%. So this means to me they will receive 23% but not greater than 23%. Moto do you agree

      "RIGHTS OF NUSTAR GP HOLDINGS

      Due to its ownership of NuStar GP, LLC and Riverwalk Holdings, LLC, NuStar GP Holdings indirectly owns:



      • the 2% general partner interest in NuStar Energy, through its indirect 100% ownership interest in Riverwalk Logistics, L.P.;




      • 100% of the incentive distribution rights issued by us, which entitles NuStar GP Holdings to receive increasing percentages of the cash we distribute, currently at the maximum percentage of 23%; and




      156



      --------------------------------------------------------------------------------

      Table of Contents
      • 10,220,350 NuStar Energy L.P. units representing a 20.27% limited partner interest in NuStar Energy.

    • moto you are most helpful thanks for going the extra mile

    • Is this not a terrific way to save money long term? And to add the tax benefits as well-- a great time to keep on buying--and saving. Thanks for the posting.

    • great post. thanx

    • There will likely be consolidation in the sector, where smaller players may be taken over. Private capital may be interested in this; many things (including capital intensive projects) may be accomplished by means of joint ventures between larger MLP players. MLPs with no existing credit revolvers, or with credit revolvers that will soon expire are at risk (NuStar's >$500M revolver expires in 2012! :)); also those who are forced to tap into capital markets anew at this time to get things done are very much - screwed. Many MLPs do fall into this category.
      Now about NuStar Energy, comments made by the CEO, Curt Anastasio, echoed/ confirmed in the back-n-forth with the panelists:
      Curt first provided a brief business/company description.
      Then he stressed that NuStar is one of the few investment grade rated MLPs (although he jokingly added that NuStar is really not being given any credit for that).
      NuStar has ample capital and does not need to go to capital markets in 2009 for anything, whether debt or equity. Stressed that they will still be able to increase distribution levels in 2009! Ample liquidity with >$0.5B credit revolver through 2012.
      Asphalt: seeing growth, high margins. Pipelines: steady stream of revenue.
      Curt talked then about the unique position of NuStar as it is a worldwide player (The Netherlands - Amsterdam/ Rotterdam area expansion, The Caribbean, Mexico).
      Said the market is clearly not paying for/ rewarding growth now (in the MLP sector). He then jokingly he said "the NuStar increased distribution a couple of weeks ago and the stock tanked; this is the last time I am doing that - I am never increasing distro again ‘laughter’ :); you heard it here first". Folks - on the NS board - that was a joke!
      The CEO added that some MLPs will have to stop increasing distribution, even cut them to pay down debt, but not NuStar Energy :).
      The moderator then asked about the many insider buys in the sector, singling out chairman Bill Greehey as the most active insider in that regard and especially at the GP level (NSH), and asked if that should be interpreted as a good sign (?). "Absolutely" was Curt's answer. Curt said Greehey is particularly interested in NSH. Before the most recent purchase of a big chunk of NSH, Greehey talked to Curt and the rest of the officers and as the management walked him through the business and they agreed all looked pretty good, Greehey said "S@*t, you guys just don't have to go bankrupt then I've made a great deal here" (reference to the high yields). Thought that was quite funny.
      Finally, one more important piece of information. Curt said NuStar has just had a meeting with the ratings agencies (all 3 major ones), went into details of NuStar's business with them and told them NuStar was doing everything it had said it would, paying down the debt and all, and delivering on business commitments. Curt added there is a general negative bias against MLP business models among the rating agencies (unrelated to the current economic meltdown) as MLPs payout so much cash to the partners. Okay, how's that for all the AAA rated companies (rated by the very same agencies) that are now going out of business and struggling to survive :).
      Folks, again, this is a unique opportunity to buy a great business and make tons of money within a year or two through both distribution unit appreciation as a result of obvious but ignored growth.
      I will be buying more NSH.
      Long NSH.

 
NS
65.25+0.30(+0.46%)Jul 11 4:02 PMEDT

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