I did some distribution math. If they had not done the Blackstone deal a distribution of $1.00 per share would have meant roughly $50 million per year based on 50M shares out. The Blackstone deal drives the share count up to roughly 65M but at the same time will reduce interest expense by approximately $11M (approximately $.17 per share at 65M shares). After dilution they now have $61 million to distribute ($50 million + $11 million) divided by 65M shares or roughly $.94 per share. However, if they can now improve their interest rate by 1% on the remaining $750 million of debt they save another $7.5 million. They would then have $68.5 million to distribute divided by 65M shares or roughly a $1.05 per share. The deal slows down growth in the distribution but makes it more solid with less risk in the near term.
Given that XTEX is going to have to pay .85 per year on the preferred regardless, if XTEX paid the common unit holders $1.00/share dividends, wouldn't the additional cost over and above what XTEX owes to the preferred holders would only amount to .15 additional to the preferred holders? If that is the case the additional expense to XTEX if they start paying $1.00 share to common unit holders, would mean that only be $2.24MM additional would have to be paid to the preferred holders provided that the common unit holders do get a div restoration of $1.00???
Well, I did pull the trigger on BBEP. I sold a little more XTEX, but held on to a substantial amount of my position. Sold all of my EPB, which is quite a trade in class and risk. EPB is a great company but it had moved far beyond my expectations, so I sold it and traded 2 for 1 in shares. I hope the lawsuit will come to nothing, then at some point distributions start ( I would rather them delever properly before starting), then distributions grow, then they issue equity and get back in the acquisitions game and grow their asset base. Will take some time.
I am trying to put my turnaround yield portfolio in place because I think the opportunity is going away.
Oh by all means. It's my only "straight" holding. The only thing keeping that company from tripling their production by the end of 2012 is execution, they have it all laid out in front of them.
XTXI report: raising estimates, accelerating estimated resumption of dist. to Q4, '10
WF new report 1/8/10. Key summary bullets:
XTXI: Adj. Ests. & Raising Valuation On $125MM Infusion
Likely To Accelerate Timing Of Distribution Resumption
• Key Takeaways. XTEX plans to issue $125MM of convertible preferred units to The Blackstone Group. The transaction could lower the partnership’s leverage ratio to 4.0-4.5x from 5.0-5.5x previously, which in turn could accelerate the timing of a potential distribution reinstatement. We are revising our model to assume XTXI resumes paying a dividend in Q4’10 versus Q4’11 previously. As a result, we are raising our valuation range by $1/share to $5-8/share. We are raising our 2010 DCF/share estimate to $0.04 from ($0.05) previously to reflect our accelerated distribution reinstatement assumption at XTEX. We are maintaining our Market Perform rating as risk/reward appears balanced. Assuming XTXI can reinstate a dividend of $0.33-0.47 per share, we calculate a valuation of $4-7/share based on the GP MLP median yield (plus a 100 bps discount) and a 12% discount rate.
• Distribution Reinstatement Possible This Year. XTEX’s current credit facility restricts the partnership from paying a distribution unless its leverage ratio is below 4.25x. Management is currently evaluating the possibility of refinancing its credit facility with more lenient covenants and completing a high yield debt offering to pay off its existing term loan facility. Additionally, we believe the partnership will target a coverage ratio of at least 1.3x when setting its new distribution. Based on this target and giving effect to the recent preferred unit offering, we forecast XTEX could reinstate an annualized distribution of $1.00/unit (or $0.33/share for XTXI) in Q4’10 based on our commodity price deck and $1.30/unit (or $0.47/share for XTXI) in Q2’10 based on current strip
Thanks. I think that pretty much confirms the math that's been done here before. I believe in the last iteration we were tossing around $1.25 as a potential number, once things stabilized.
And, of course, it made my decision to move pretty easy. Which would you rather buy, a $10 MLP unit capable of distributing $1.30 or a $12.50 one capable of distribution $2.00 (conservatively)?
Also I think the prospects for re-starting distributions are brighter at BBEP, they are tossing big stacks of cash flow at debt right now. And they're oily besides. It's not so much an issue of comparing these two companies, it's just that BBEP looks like the most attractive MLP yield opportunity on the board right now aside from XTEX, and maybe EROC, depending how it shakes out. Well, I've made my call, we'll see!
Well, I did sell 25% of my position and bought ENP at $20.00. I am not a cap gain player, generally and soon XTEX will be converted into an income investment with prospects for growth. Good Luck. You will probably be rewarded with BBEP.