Is there something I'm missing about this latest acquisition announcement? I thought it seemed like a solid move all the way around, they're even not planning on issuing new units to pay for it, but another big move down.
Even if they cut distribution to a fully covered $0.75/qtr, still yielding above-market 7.1% at current price. As far as I can tell, their core pipeline/terminal businesses are doing basically fine.
Anyone have any guess what they might get for the refinery? From what I can figure, they paid about $85 million to buy and renovate it.
Credit Suisse raised from underperform to neutral, same price target of $44 but expectation of distribution cut to $3.30/share.
NS is forced to look at junior subordinated debt at much higher rates for 100% of this deal versus 50/50 debt equity because cost of capital way out of line with peer group. Even then, CS is cautious on just when accretion will be realized suggesting perhaps 2014 versus 2015.
CS is also clear that NS would be a good acquisition candidate because their systems could be bolted on to KMP or EPD easily and be far more accretive to those two MLPs than remaining under the NS banner.
The history of MLPs cutting distributions is not a good one. Only APL came back big but they had to sell one major G&P system and then sell the rights to their Marcellus JV w/WPZ to Chevron as part of a larger deal with Atlas in order to regain superior balance sheet strength and quickly restore (from zero) a juicy distribution. Those of us who understood APL now have an MLP whose distribution yield to our cost is 20-30%.
I am in the camp that believes NS must cut but there will be no quick restoration to old levels because they would have to gut themselves to obtain a better balance sheet. I now expect a deal to dump the rest of asphalt before year end.