Preferred holders are getting 10% on their shares starting NOW before any distributions to XTEX common and distributions to XTXI common. This is costing us more than our interest rate on our debt even now after we kicked in the higher rates. This is terrible for Crosstex common.
I'll take those preferreds at $8.50 all day long. They have somewhat locked in value, can convert to common at $8.50 in the future, and get you 10% starting now - before commons get squat.
I cannot believe mgmt had to go in this direction. Really, is there that much difference between financing $900 million and $775 million. C'mon!
Does anyone have any idea on how payments on the preferred units relate to the IDR's? If there are no IDR's attached to the preferred units, this would significantly reduce their long term cost to the partnership. For example, at a distribution of $.375 per quarter, the total cost to the partnership is $.3975 when the IDR's are included. At a distribution of $.50 per quarter, the cost including IDR's is $.5825. At a distribution of $1.00 per quarter, the cost including IDR's is $1.3225. If preferred units do not trigger IDR payments to XTXI, the preferred units might be less dilutive than selling common units.
At this point, it is unclear how distribution will get to XTXI. Two things:
1. Does the 33% that goes to XTXI include the amount of profits that were shifted over to these new preferred, thus having no effect on XTXIs profit here? Or, do they get the crumbs after distribution to preferreds and XTEX basically killing XTXI dividend?
2. Does the IDR get based on the total distribution including preferred which means that .25 IDR level goes into effect if XTEX common gets as little as .04 since .21 already goes to preferred or does the .25 IDR only kick in after the .21 to preferred and .25 to XTEX common? Again, meaning that XTXI only sees crumbs.
This is a huge difference for XTXI shareholders as far as what dividend they could see in the future. I would have to guess that the mgmt is not planning on getting crumbs.
Blackstone invested after XTEX was in trouble!! If Crosstex can refi now at a great rate , it at worst is a wash. The .2125 may represent a floor for the distribution. I am for getting this ship up and running. I do not think the terms are punitive for existing unit holders. I expect this to be above $9.50 not so far ahead.
Disagree. this is the type of action I'd expect from a company in desperate straits........Reducing debt by 12-15% doesn't really give us much.
Something is not right.....either the refinancing fell apart or there was a sweetheart deal made. Either way, longer term, our units are worth about 30% less. They probably could have issued 15 million units at $9 this week.....
I'd agree with your sentiment if this had made a substantial dent in our overall debt.....if this had eliminated 33% of our debt then I'd be inclined to trust management was making the best decision.......but 30% dilution for 12% of debt??? Very poor deal. I'd rather wait another year for distributions and work our way out.
The other negative here is that the partner is the Blackstone group. They don't give a damn about this business in the long term. Their interest is in doing whatever is needed to get the stock price up 50 or 100% in two years and taking their profits. That means they have a very different agenda than most holders of the company, plus I don't know of any real expertise Blackstone has in the pipeline/NG area.
And to be clear, despite the cratering of the stock price I don't have a negative view of the management team. They can't stop hurricanes and the timing of the financial crisis on top of that got us into a jam.......this transaction is of their own making and I think its a very poor decision.
I was hoping they would refinance before doing any kind of equity raise in the hopes of a higher price (less dilution). However, we as shareholders have to rely on management to make decisions with the information they have and we don't. The price is up on volume so clearly somebody likes the deal.
Crosstex was on the black list of most companies that cover and invest in MLP's. This deal minimizes risk and adds a partner that may bring back credibility and attention to the company.
This really is an equity raise. As long as Crosstex maintains a distribution of equal to or greater than $.85 per share the net effect is they raised $125M at $8.50 per share. I can certainly understand why some investors would be disappointed in this deal. It certainly does create more stability though and who knows how the distributions might grow in the future given the potential of their assets.
"I cannot believe mgmt had to go in this direction. Really, is there that much difference between financing $900 million and $775 million. C'mon!"
If this amount of additional debt reduction changes debt metrics favorably such that they cross over certain thresholds, it can make quite a bit of difference.
If the investment is no longer what you expected it to be then that is a clear sell signal for you. I won't invest in any company where I have lost confidence in management. Again, we rely on management to make decisions based on information they have and we don't. We don't know what all their options were/are. There is no question this move creates stability. Whether that stability was worth the dilution limits placed on the upside is not something we can determine given we lack information about the company's options.