RNF TO Buy Texas Facility; Reduces Risk of Only One Plant
Rentech Nitrogen Partners, L.P. (NYSE: RNF) announce d today that it has entered into a definitive agreement with Agrifos Holdings Inc. to purchase all of the membership interests of Agrifos LLC, for an initial purchase price of $158 million. Agrifos owns and operates a plant in Pasadena, Texas, that produces primarily ammonium sulfate fertilizer.
The initial consideration is to consist of $138 million of cash, to be provided through an amended credit facility, and $20 million of common units of Rentech Nitrogen. The acquisition is expected to be accretive to cash available for distribution per unit beginning in 2013. Rentech Nitrogen will host a conference call today at 7:00 a.m. PDT to provide additional details regarding the transaction.
"We are extremely pleased to announce our first acquisition, one year after Rentech Nitrogen became a public company. Agrifos' business is expected to provide incremental cash flow and diversifies the products, markets, location, and raw materials of our existing natural gas-based nitrogen fertilizer plant in East Dubuque, Illinois," said D. Hunt Ramsbottom, CEO of Rentech Nitrogen GP, LLC. Mr. Ramsbottom continued, "Not only do we expect this business to be accretive to cash available for distribution beginning in 2013, but the facility comes with several growth opportunities, the first of which we have included in our financing package for this transaction. This growth at the Pasadena plant would add to the growth in cash flow that we expect from the expansion projects currently underway at Rentech Nitrogen's existing fertilizer plant."
The Agrifos facility is the third largest producer of ammonium sulfate fertilizer, or AS, in North America, and the largest producer in North America of synthetic granulated AS. The plant's other products include ammonium thiosulfate fertilizer, or ATS, and sulfuric acid, or SA. The plant uses ammonia and sulfur as raw ma terials to produce these products. Product margins and seasonality of sales are generally less variable than those of ammonia, with premium pricing received for Agrifos' superior quality AS product. The products are sold through distributors to customers within the U.S. and Brazil. AS and ATS are typically blended with other nitrogen, phosphate, potash, and potassium fertilizers for application to a variety of crops to maximize yields and maintain nutrient balance within crops. SA is utilized for industrial purposes.
The plant's approximate production capacity on an annual basis is currently 575,000 tons of ammonium sulfate; 570,000 tons of sulfuric acid, of which 139,000 tons are available for sale and the remainder of which is upgraded to ammonium sulfate; and 57,000 tons of ammonium thiosulfate. AS production capacity is expected to increase to approximately 690,000 tons per year in the first half of 2014 upon completion of the f irst identified and financed growth project at the plant.
The plant is strategically located on approximately 85 acres in Pasadena, Texas, with 6,200 feet of frontage on the Houston Ship Channel; 2 deep-water docks, providing access to key waterways for international shipments, low-cost barge access to the Mississippi waterway system, and significant supply of key raw materials. The site has immediate access to railways serviced by BNSF and Union
Pacific, which is advantageous for distributing products west of the Mississippi and realizing favorable transportation costs.
Other assets being acquired include solid fertilizer warehouses, an ammonia dock and tank, and product storage facilities and tanks.
The facility and site provide a number of opportunities for organic growth in cash flows from the acquisition.
Ammonia hedge for East Dubuque facility
As an ammonia upgrading plant, the Pasadena facility consumes approximately the same amount of ammonia as the East Dubuque facility sells. Agrifos purchases ammonia based on Tampa prices, which are lower than the Corn Belt prices at which the East Dubuque facility sells ammonia. This should allow the consolidated business to capture the premium between Tampa and Corn Belt pricing, while reducing the consolidated exposure to the variability in ammonia prices.
Ammonium sulfate prices have historically been more stable than have the prices for the principal products of the East Dubuque facility. Margins have also been more stable, as the prices for ammonium sulfate have been correlated with those of ammonia and sulfur, the two principal inputs for the Pasadena plant.
Diversifies crop and market concentration
Currently, Rentech Nitrogen sells products that are applied mostly to corn. With ammonium sulfate, this crop concentration is dives ified, as AS is commonly applied to multiple crops such as soybeans, potatoes, cotton, alfalfa and wheat. The acquisition also expands Rentech Nitrogen's geographic customer base, from a concentration in the Mid-Corn Belt, to broad coverage across the U.S. and into Brazil.
Reduces single location risk
With the addition of another site, located in a different region, Rentech Nitrogen will now have multiple plant locations, and therefore risk associated with being a single location company will be reduced.
Reduces seasonality of sales
Rentech Nitrogen's sales are currently weighted toward the fall and spring application periods for corn crops in the Midwest. AS from Agrifos' plant is applied to multiple crops in multiple regions, including Brazil, with application periods throughout the year, which will reduce the seasonality of Rentech
Nitrogen's consolidated sales.