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Crosstex Energy, L.P. Message Board

  • joefridaye joefridaye Jan 27, 2010 12:05 PM Flag

    The company has provided a road map

    Remember when just a few short months ago Crosstex was supposedly toast. Morningstar put their fair value at $1.50 and the predictions were that it would be “years” before they would pay a distribution again, if ever. Since then management has sold off non-core assets at decent prices and deleveraged to the point at which the company’s debt levels are among the lowest in the sector. The Morningstar analyst has raised the fair value three times in the last several months, the latest being to $12 per share. You can’t look at what XTEX was six months ago to analyze risk. They look very different today and today is what matters.

    Management has been counted out at every turn yet each time they seem to come through. They told us on the last conference call what the market was offering them for an interest rate on debt refinancing. This was in the 9% range, about what they were paying now. So the comments about them paying really high double digit rates on a note offering are not well founded. They had to know what to expect from their bankers when they announced the offering. This doesn’t mean they won’t be surprised like Energy Transfer, but the new Blackstone relationship has to help. Lets not forget that Crosstex was a very well regarded MLP before the crisis hit and they found themselves over leveraged at the wrong time and hit by the hurricanes.

    If you were also listening to what the company has been saying it was clear their main goal was to restore the distribution sooner rather than later. Considering what they have accomplished thus far in their comeback moves, I would bet on them rather than against them. All that is left is to hear that they were able to sell the notes at a rate similar to their current debt they are paying off. For the poster who said it doesn’t make sense to refinance if they can’t get a better rate, I would strongly disagree. What they are gaining is flexibility, time (the notes don’t mature until 2018) and thus the ability to restore the distribution (their main goal).

    The last piece will be what the initial distribution will be along with future guidance. Anything below $1 per share annually will be a disappointment in my opinion. At least to me it will be. Anything above $1 will be an upside surprise. The stock price is currently trading as if it will be $1 with a small risk premium against it not-happening. The stock probably trades at about $12 give or take $1 within 30 days of a distribution being restored at $1. However, first they need to have a successful completion to their note offering. We should know very soon.

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    • Well, I would agree with you concerning the share price of $12 if they pay a distribution of $1 a year.

      But the deal hasn't been struck yet to get them out of their current situation, and today's climate for other NG MLPs and producers is pretty grim. NG is down 3-4%.

      The best marker for what the distribution will be is the amount they're paying on the preferred stock, or $.85 per year, since they will have to pay the preferred stockholders for any excess of that amount in distributions to the XTEX unitholders.

      Morningstar was touting XTEX and XTXI right up the the moment they exploded, so they don't get my vote for authorities on the stocks.

      We're all hungry for the distribution, but this could (possibly, not necessarily) turn out to be a situation of buy the rumor, sell the fact.

      I'm not knocking the stock, just advising everyone to keep their eyes open.

      • 1 Reply to smorefi60
      • I don't disagree at all. That is why I mentioned there is a risk premium built in to this deal getting done and the dividend reinstated. If it were a sure thing the stock would be a couple bucks higher. A shaky market is not going to help them get it done either. However, you would hope and expect they had a high degree of confidence they could complete a favorable deal. If they have to pull it the stock will get hit pretty good. Not that they can't come back from this but it will be a significant set back.

        The Morningstar analyst who has been behind the curve the whole way says he thinks they need to prove the cash flow for a couple of quarters before reinstating the dividend. I don't agree, but it is worth noting the opinion is out there that the refinancing will not necessarily result in the restarting of the distribution next quarter.

    • Bingo! Thanks for that.Could not agree more.

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