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Eagle Rock Energy Partners, L.P Message Board

  • youcanpickum youcanpickum May 5, 2009 2:48 PM Flag


    My guess is that we go nowhere until earnings and conf. call after. Who wants to buy into that call considering the blindside dist. cut last week.

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    • More from Barclays:

      • EROC plans to reduce debt by $75-$100 mm annually and bring debt balance to $650 mm: Given EROC has not violated its debt
      covenants; there has been no increase in fees or re-pricing of its revolver, which stands at LIBOR+175 bps. EROC has a $1 billion
      revolver facility that matures in 2012. EROC had 3.7x Debt to EBITDA ratio at the end of 4Q08. Management goal is to bring Debt
      balance to $650 mm and maintain debt to EBITDA of 3-3.5x. With the distribution cut, EROC expects to pay down debt by $75-$100
      mm annually. As such, we believe EROC will maintain $0.10/year distribution till mid-late 2010.
      • EROC has 20.7 million subordinated units that have not converted to common units: The sub units are owned by EROC’s GP
      Natural Gas Partners. As part of the partnership agreement, when distribution falls below minimum quarterly distribution of $1.45, the
      sub units cannot receive distribution until the commons have received MQD. As such, the common unit holders will have arrearage
      rights during the period EROC pays below MQD. Assuming EROC pays $0.10/unit per year for the next 8 quarters and reinstates MQD
      for all unit holders thereafter, EROC will have to pay an aggregate of $150 mm to its common unit holders before it can start to pay
      distribution to its sub unit holders.
      • We value EROC units at $4.00 based on 6x multiple on EROC’s assets: Given our EBITDA estimate for EROC up to year 2011, we
      do not believe EROC can pay arrearage to the common unit holders out of its distributable cashflow. Unless EROC gains access to
      reasonably priced capital to pay out common unit holder’s arrearage rights, we believe it is possible that the GP liquidates EROC’s
      assets to claim residual value of its ownership. Using EV/EBITDA multiple of 6x we believe EROC units should be worth $4.00 per unit,
      which is an average of three points estimates based on our EBITDA assumptions from 2009-2011. Given debt makes up a large
      portion of the enterprise value, the equity value will have small but magnified impact on the overall valuation which should lead to
      volatile unit price movements. Our model assumes EROC not paying distribution till year 2011.

    • This is from Barclays today:

      Investment Conclusion
      We reduce PT to $4 based on EV/EBITDA
      multiple of 6x. EROC cut 1Q09 distribution by 94%
      to $0.025 from $0.41 per quarter, or annual
      distribution of $0.10 per unit. Given EROC's plan
      to pay down $150mm of debt, we believe EROC
      will pay $0.10/year distribution until end of 2010.
      􀂉 EROC cut distribution drastically to improve
      liquidity in light of weak 2009 EBITDA outlook and
      borrowing base reduction. Mgmt expects to report
      Q1 EBITDA of $40 mm (31% below our est of $58
      mm and consensus of $57 mm) and $40-$45 mm
      of qtrly EBITDA in 2009, implying annual $160-
      $175 mm, down 33% YoY. Borrowing base
      reduced by $70 and redetermined at $135, vs
      $179 mm of liquidity at 4Q08. By cutting
      distribution, EROC plans to pay down debt by
      $75-$100 mm annually. Goal is to reach $650 mm
      debt balance from current $800 mm.
      􀂉 While Q1 results report on May 8th, it appears
      weakness came from midstream segment driven
      by reduced drilling as well as ethane rejections in
      Texas Panhandle and East Texas.
      􀂉 We reduce PT to $4 based on EV/EBITDA
      multiple of 6x. Our previous PT was based on
      distribution of $1.45 and 18% target yield.

    • This is from S&P on 4/30:

      04/30/09 02:54 pm ET ... S&P DOWNGRADES
      PTNRS TO HOLD FROM BUY (EROC 3.85***):
      EROC announces that it will cut its quarterly
      distribution to $0.025 per unit from $0.41 per
      unit. EROC believes that the cut will enhance its
      liquidity position as it expects lower cash flows
      resulting from the decline in commodity prices
      and drilling activity.We are concerned that the
      cut in the distribution will lead to EROC shares
      becoming less attractive to other master limited
      partnership companies which have not reduced
      their distributions.We lower our '09 earnings
      per unit forecast to $0.60 from $0.75, and drop
      our target price to $5 from $7. /T.Shafi

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