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Phillips 66 Message Board

  • rdravin rdravin Jul 19, 2013 3:40 PM Flag

    How does spinoff affect PSX pps?

    PSX will have a MLP spinoff. Seems they get cash in return for certain assets.
    What is likely pps impact on PSX? Is MRO - MPC spinout a good example as expected action?

    Sentiment: Buy

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    • Certain assets are placed in a MLP with PSX being the managing partner and initially owning all the assets. It is basically a subsidiary but has different accounting rules. PSX is now in the process of having an initial public offering for some of the units (less than 25%). PSX will be paying the MLP for the use of assets as well as anyone else that uses them. The MLP pays out at least 90% of earnings to the units in a distribution each quarter. There is also a table in the MLP agreement, usually 4 stages. When the distribution gets to a certain level the managing partner keeps a certain % of the earnings over the predetermined amount until you get to the next level. After the 4th level the managing partner keeps about 50% of the overage form then on. The arrangement is made by those who set up the partnership so that the unit holders could be assured that the managers would do everything possible to raise the payouts.

      Depending on the financial strength of the MLP, they can go out and borrow money in order to expand. They can also sell more units. PSX can also sell some of their units to raise money. In the end PSX can build up an empire using some financial engineering, yet still control everything. They have already done this with spectra Energy with DCP, which in turn owns DCP partners. Although not an MLP, they own 50% of CP Chem a huge chemical company that grows using its own cash flow. CP Chem is adding to 5 chemical [plants in the US to take advantage of NGL's that PSX markets through DCP. For the time being our main concern is margins in the refining business, which historically are always choppy. However, over time that will become a smaller part of the overall empire. They also want to expand their lubricants and additives business.

    • there is no spinoff

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