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Crosstex Energy, Komandit ┼×irket Message Board

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  • geotype50 geotype50 Jan 5, 2010 3:23 PM Flag

    Valuation question


    Although I agree with your general conclusion, I think your math is a little off because you are neglecting the first two tranches of IDR's among other things. XTXI gets 13% of all distributed cash between $.25 and $.3125 per quarter, 23% of all distributed cash between $.3125 and $.375 per quarter and 48% of all the distributed cash above $.50 per quarter from the IDR's. XTXI also gets their 2% GP share and the distribution from the 16.4 million LP units they own. Based on some rough calculations, if XTEX distributes $.77 per quarter to the LP's, XTXI will get enough cash to pay a $.51 per quarter dividend and XTEX will distribute $.9975 per unit per quarter, including the IDR's. I have tried to account for the different number of units/shares for each entity.

    There are a number of reasons why XTXI and XTEX might be priced to have different yields. Above an XTEX distribution of $.375 per quarter, XTXI's dividend should increase faster than XTEX's distributions. Mutual funds that may not be able to own partnership units can own XTXI shares. Individual investors may prefer to receive dividends rather than distributions for various tax reasons. There are likely other reasons that don't occur to me at the moment.


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    • Management owns 13% of XTXI, which in turn owns 33% of XTEX. See

      Their interests are aligned with XTXI as well as XTEX. As part of the refinancing deal, I think the banks and management will agree to re-write XTXI'x IDR agreement with XTEX. Lots of things have changed; so should the IDR agreement, or so it will be argued. Who knows, maybe they'll merge the two?

      • 1 Reply to lner2512
      • You're assuming that XTXI has the ability to rewrite its contract with XTEX. I don't think it does. It can propose such a change and have it voted on by the unit-holders of XTEX. Don't know how far that would get!

        They could likewise propose to combine XTXI and XTEX (into XTEX), which would require a vote of XTXI shareholders and XTEX unitholders.

        The second is more likely, but being second in this case isn't a high hurdle to jump.

    • Yes, Jim, you are right about the extra percentage of cash going to XTXI. I left it out to keep it simple since it still did not allow XTXI to catch up from a dividend/distribution perspective.

      I agree that some funds cannot hold XTEX and the issue of add'l tax implications of XTEX distributions.

      Another item is that it appears that the management is only allowed to own XTXI stock and issued XTXI stock as a form of compensation. Of course, by owning XTXI, you technically own XTEX based on what we already know.

      I am still trying to ascertain what makes the corporation (XTXI) more valuable. It may have to do with the fact that XTEX is completely run by XTXI as the management has total control of operations, deciding future distributions, acquiring/dispursing assets, and ultimately the sale of company and how stock sale price would be determined. Obviously, it is in the interest of management to have a high value for XTXI since those are the shares that they hold.