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Northern Tier Energy LP Message Board

  • twomovehigher twomovehigher Jun 30, 2013 9:49 AM Flag

    NTI and its secondaries

    I understand that MLPs offer secondaries. NTI has offered a secondary the last two quarters. I am concerned about the dilutiuon factor and the divvy/dist. if they keep offering more shares. CLMT offers secondaries also, but not every quarter. Should I be concerned or am I overreacting.

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    • You're right to be concerned, but I think the risk is built into the stock price.

      The PE firm bought the refinery in late 2010 for $ 600 MM. By the time of the IPO, it owned 75 MM units of NTI with a net cost of only $ 120 MM, or about $ 1.75 per share. They were willing to sell units at $ 14 in the IPO, and they aren't philanthropic; maybe that was a few dollars less than they wanted, but that's all.

      Since then. they have shown a willingness to sell units at $ 24 and $ 26. They still own about 50 MM units. So if NTI moves up, you should expect that they will continue to sell. As a PE firm, they are not going to hold forever.

      I was surprised they didn't sell more units when NTI broke $ 30, but that price didn't last long enough to get another secondary done, probably.

      The risk is whether they are willing to sell at lower prices. Based on the IPO pricing and the huge profit they have already made on NTI, I wouldn't be surprised at additional sales in the low $ 20s, if the price drops.

      Similar risk for CVRR. But I think part of the reason you can buy NTI for $ 24.50 today is that people expect additional sales. So I think the risk is priced in.

      BTW, CLMT (which I also own) is completely different. CLMT has been issuing new units to pay for refineries that it has been biuying. NTI isn't getting the proceeds of its secondaries - they are sales by the controlling unit holder.


    • Watch the Vanguard (VNR) model. Right now is a great time to buy producing assets. So they sell stock and buy production, that equates to more dividends and continuing dividend growth. At the end of the day it's a wash. The questions is WHEN? If then are selling stock to buy production when production is cheap (like now) it's a good move. If they do it to buy when production capacity is expensive, it's a bad move. Excellent article on Seeking Alpha about this very issue today.

    • nickgrigorenko Jul 1, 2013 9:49 AM Flag

      Yes, it is dilutive

    • These secondaries are not dilutive. It's private equity selling shares to the public. More shares are public, but ownership and distribution stays the same.

    • might try to do an offering before next quarters dividend cut

21.30-0.02(-0.09%)May 31 4:02 PMEDT