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Constellation Energy Partners, Message Board

  • Brennus01 Brennus01 Jan 21, 2011 8:46 AM Flag

    CEP S-3...$500MM

    Units, debt, warrants, rights.

    Fun, fun, fun...

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    • By news I meant it was a public SEC filing. It is listed on the CEP web site and available to everyone. I doubt that professional investors who follow any company don't follow their SEC filings.

    • "since the news was released on 1/21."

      Where has the news been released? I didn't see any news report except the S-3 which someone on this MB seems to have tracked down. Yahoo is not reporting any news about it.

      Maybe the reason for no market reaction is that hardly anyone knows about it.

    • Can't wait for their next conference call to see how they explain their new thinking. Seems like in their last call they were pretty much against an equity raise due to the likely dilution. Unclear what they're really up to.

      From November conference call:

      Gregg Abella - Investment Partners Group - Analyst
      I'm doing okay. Quick question -- I mean, you just announced basically that you're not going to pay distribution through 2011.
      And that's due to the current price of natural gas and your anticipated projection of where natural gas prices could go for next
      year, and the fact that you have a certain amount of debt that you have to discharge over the course of the year. Is it fair to
      assume then that you're not going to do any sort of equity raise to bolster the balance sheet?

      Stephen Brunner - Constellation Energy Partners - President & CEO
      Well, Gregg, that's a good question. And all options are considered at the Board quarterly. Just a couple of thoughts on that,
      any equity issuance is likely diluted to current unitholders. As we look forward over the next five years, we believe this asset
      base and hedge portfolio does allow for a limited capital program while substantially reducing debt.
      Our prospective leases are held by production and/or concession rights. So, we aren't in a position where we have to invest
      capital in these market conditions to preserve the long-term value. I just will remind you that --

      Gregg Abella - Investment Partners Group - Analyst
      I can appreciate that.

      Stephen Brunner - Constellation Energy Partners - President & CEO
      -- our management team does own a little more than 6% of the units. So, we have a vested interest in adding value for all
      unitholders. And given the current market conditions, we don't believe it's prudent at this time.

      Gregg Abella - Investment Partners Group - Analyst
      I can appreciate that, although I'm sounding like a broken record. But your primary business objective is to generate stable cash
      flows to make distributions. Now through a capital raise, if you were able to do that, why wouldn't you, particularly through a
      rights offering, where, yes, it potentially could be dilutive unless everybody takes another swing at the pinata here?

      Stephen Brunner - Constellation Energy Partners - President & CEO
      Yes, and that's a significant and potentially reasonable idea. We discuss all options with the Board on a quarterly basis. And I
      can't project what we will or won't do in the future, given market conditions, but we review it quarterly with the Board.

    • "I believe that CEP holders might actually fair well from this move in that the distribution might get restored to someting like $.24/unit."

      At least one encouraging fact is that so far CEP's price hasn't tanked on the news and has been relatively steady since the news was released on 1/21. This would at least suggest the collective wisdom of the markets is that this isn't going to be massively dilutive to current unitholders and maybe give it a slight boost if they can successfully pull off at least a small offering.

      As I understand, CEG desperately wants to sell and I believe their ownership level has been decreasing slightly (so they are selling), so even if mostly only the CEG shares got sold, it would remove the CEG selling pressure (whether real or perceived).

    • OK, I haven't read the full filing just the first couple of pages.

      But what I want to know is how can a company of what, around 40M? market cap, expect to raise 500M? It would be like a subprime mortgage.

      Before any investor would commit their money, I would think they would want to know what the money will be used for. I would want them to have deals confirmed contingent on the financing and be able to demonstrate that the money will be used for accretive purchases that will be able to pay the investor a decent return. Absent that, I wonder how could they hope to get 500M financing.

      So, do we know any solid facts about what the funds will be used for? Are there property acquisitions already in the works waiting for this new funding before they are consummated?

      Or are they just saying give me $500m and trust me to use it wisely? Given the history of CEP, I imagine most investors would want more than that.

    • No, it isn't all units. If you read the S-3, it clearly states as was already mentioned by a previous poster, units, debt securities, warrants and rights.

      This is the recap I have been pounding the table for. Now, they have to pull off the offering and wisely invest the proceeds.

      I believe that CEP holders might actually fair well from this move in that the distribution might get restored to someting like $.24/unit.

    • "This is not a $500 million unit offering."

      I think it is.
      The S-3 says $500m primary offering plus $16.75m secondary offering assuming price of $2.83 for total proceeds of $516.75m.

      So it does sound like $500m worth of new units which would be more than 10 times existing units assuming price doesn't drop. If price drops the issued units would have to be even higher.

    • This is not a $500 million unit offering. It is a $500 million mixed offering, which means it will allow CEG to sell their units into the open market whenever CEP does a secondary offering. Those CEG units are already issued and accounted for, however, the market will have the absorb them. The offering also allows CEP to issue new debt (bonds).

      I wouldn't look for CEP to blow through this all at once but rather over a couple of years. I'd expect a $50-$100 million dollar offering first within 3-6 months.

    • This deal seems to be a save my paycheck incentive by management!!!!

    • I just found a reference in a corporate finance book that defines primary and secondary offerings, as specified by SEC filing requirements, a bit differently than how I normally think of them.

      If says for SEC filings,
      "If the purpose of the offering is to allow an existing shareholder to sell a large block of stock to new investors, the issue is a secondary offering and raises no capital for the firms. If the shares offered for sale are newly issued shares, which increase the number of outstanding shares and raise new capital for firms, the issue is a primary offering. If some of the shares come from existing shareholders and some are new, the issue is a mixed offering."

      So they have just done a shelf registration of a mixed offering as they are looking to sell the CEG shares and additional new shares to raise capital.

      Seems like the big issue is at what price the new shares get offered at and at what price CEP settles at after the offering.

      If rr is correct then I'd assume that if they can offer shares at anywhere near the current price, then the cash inflow will allow them to turn themselves into a viable company and the price would then rise to reflect that.

      However, if they can only sell shares at $2 or less and the stock stays down there long after the offering, then I think one could argue it was a bad idea for existing shareholders. Certainly more knowledgeable investors than I will make that determination.

      My after tax $0.015

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