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Crosstex Energy, L.P. Message Board

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  • rrb1981 rrb1981 Jan 10, 2006 8:32 PM Flag

    Any news on secondary offering?

    Thought I might walk through some of the numbers rather than just post them without giving any detailed back up. Lets look at the recently announced Hannover compressor acquisition. This acquisition is massive in terms of solidiying XTEX as the leader in the rapidly growing gas treatment business. They have cobbled together what now amounts to the largest treating division in the country. They have bought out Graco, Cardinal Gas and now Hannover. Now lets look at the financial side of the transaction. They paid 52 million for the assets. Lets assume that they bought them at a modest 7x multiple. That would mean the cash flow from those assests was around 7.4 million. Lets assume that they finance the transaction 50/50 debt and equity. So, they borrow 26 million at around 6.5%, and they issue 740,000 units to pay for the equity portion. The debt will incur interest expenses of around 1.7 million annually, while the units will have to have distributions of around 1.9 million (the $1.96 LP distribution plus the .60 GP IDR payment). That means that financing the deal costs 3.6 million. That leaves around 3.4 million to be split between the GP and the LP. Lets assume that they hold back 10% off the top for distribution coverage. That now leaves around 3 million to be split. The GP, since it is in the 50/50 splits, gets half of the accretive cash flow (meaning they get 1.5 million, not half of the total cashflow). The LP units get the other half. Currently there are around 26 million LP units, so they must split the other 1.5 million. That amounts to .057 cents per unit of accretion. Also keep in mind that XTXI owns 10 million of the 26 million XTEX units, so 39% of the cash that went to the LP goes back to the GP. That 39% of the LP cash is 19.5% of the total accretive cash (because it was split 50/50 earlier). The GP therefore gets a little over 2 million bucks which it must pay taxes on, and then spread over 13 million shares. That comes out to about .10 or .11 cents per share after tax. That might not seem like much, but remember, XTXI only had to fund half a million dollars of the 52 million dollar purchase (they have to fund 2% of the equity costs, and the equity portion was 26 million. So, they walk away with a continuous cashflow stream of 2 million a year, for a all in cost of about .5 million. Furthermore, the number of XTEX units has risen by .74 million, meaning that since the current GP take is around .60 unit, that is an additional 400K that XTXI will recieve, so the sum total comes to around 2.4 million, for a cost of about .5 million. Ahh, and now we know what Rich Kinder saw in 1997 when he and Bill Morgan paid 17 million for the GP of what was then Enron Liquids Partners, a sleepy MLP with a few terminals, and some CO2 assets....... the GP is a cash flow beast. Its arbitrage at its finest. Buy assets at 7x to 10x cash flow and finance them at 6% or 7% and laugh all the way to the bank.

 
XTEX
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