One third of the goal, which should be forgotten
From Barclays:
Investment Conclusion
EROC posted another quarter of better than
expected results driven by favorable commodity
prices. On the other hand, leverage ratio and
liquidity position were worse than expected.
Leverage ratio reached 4.75x vs 5.0x covenant
limit. EROC had $45 mm of liquidity at the end of
Q3 including $35 mm available from its revolver
capacity. While we are concerned with leverage
and liquidity going forward, we believe a timely
completion of asset sales/recapitalization
transaction will allow EROC to immediately fix its
balance sheet and grow distribution from its
current levels of $0.10/year. We are maintaining
our distribution estimates based on our
assumption that recapitalization and asset sales
transaction completes by early 2010.
Summary
๔ EROC reported EBITDA of $51.3 mm and DCF of
$36.6 mm above guidance. Midstream EBITDA
rose 27% QoQ despite 4.8% of volume decline,
due to strong commodity price improvement.
Made progress on debt paydown reaching $30
mm in Q3 and $63 mm since Q1.
๔ We maintain PT of $6 based on distribution
assumption of $0.57/$0.85 (assuming 1.3x
coverage) in 2010/2011 and target yield of 12%.