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Crosstex Energy, Inc. Message Board

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  • rrb1981 rrb1981 Feb 6, 2005 10:32 PM Flag

    XTEX Versus XTXI

    Indeed, XTXI should have more upside than XTEX because XTXI owns the incentive distribution rights, and the IDR's give XTXI a lot of leverage. In other words, while XTEX may possess a higher yield, the dividend at XTXI ought to grow at a higher percentage than the distribution at XTEX. XTXI gets superior returns on its invested capital because they are in the 50/50 splits in the IDR's and they get to double-dip. When I say double-dip, they get a 1 for 1 match on any increase in the XTEX distribution, furthermore, as XTEX issues units to pay for its acquisitions, it gains a bigger base on which to levy the ever increasing GP cut. XTXI fronts 2% of any purchase that XTEX makes and in exchange receives a substantial portion of the newly acquired dcf. Contrary to popular belief they do not get 50% of the newly acquired cf, but 50% of the cf after financing costs...i.e. the cf that is left after (interest and/or distributions on newly issued units used to finance the acquisition). One can see that issuing units is a plus and a minus, its a plus in the fact that they gain a larger base on which to collect the IDR's, but at the same time it means more units on which they have to spread the accretive cash flow. Debt also has its pluses and minuses, a lot of debt means fewer units to spread the accretion over and a higher increase, it also means more risk. So they usually do a 50/50 mix of equity and debt.

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