I will give a kind of updated glance at Crosstex and how things might play out. Right now the Barnett Shale and El Paso deals appear to be taken care of in terms of financing. As it stands, XTEX issued 1.46 million units in a private offering a while back to pay for the Barnett Shale deal. That brought the total number of units outstanding to around 19.5 million units. Keep in mind that Crosstex has not even finished the Barnett Shale pipeline and they have already financed half of it with equity and presumably the other half has been financed with debt, in keeping with the 50/50 financing that they practice. The current distribution on XTEX is $1.96/unit and the "hidden" GP take, counting the 2% economic interest and the incentive distribution rights comes to around $.53/unit, meaning the total payout is around $2.50/unit. So, crunching the numbers, we can see that if the Barnett Shale comes in at 98 million dollars and produces the expected 17.5 million in cashflow, then we can start dissecting how that all plays out. We know that 49 million of the project was financed with debt, so the interest expense on it will be 3.43 million, assuming a 7% borrowing rate. The equity portion will end up costing around 4.18 million (that is the 1.46 million units they issued multiplied by the total payout of $1.96 LP distribution + the .53 GP payment) then multiplied by 1.15 (because they normally holdback 15% for a overage ratio). That means that the total available cash that is left is around 9.9 million. I further assume that they set aside around 15% of that amount(again for a coverage ratio). That leaves around 8.4 million left to be disbursed between the GP and the LP's. Since the GP is now in the 50/50 splits, the cash is evenly divided between the GP and the LP's. That means that XTXI gets 4.2 million for the GP take and the inentive distribution rights and the now 19.5 million LP units split the remaining 4.2 million. For XTEX, that comes out to .22/unit increase(which i might add is what XTEX has previously projected on one of the conference calls). For XTXI, the amount per share is somewhat more involved to calculate. XTXI, in addition to owning the GP an IDR's, also owns 10 million XTEX units. That means that in addition to the 4.2 million GP take, they also collect another .22/unit on the 10 million XTEX units that they own. So that is another 2.2 million. That comes to a total of 6.4 million, which is, spread over roughly 13 million XTXI units. That comes to around .49/share pre-tax, which after tax (23% tax rate) comes to around .38/share. They have projected .40/share on one of the conference calls, which may mean that my 13 million XTXI shares number is a tad bit high (I just rounded it to a smooth number, knowing that the real number is somewhere around that figure).
So that would mean that, at least hypothetically, that the distribution at XTEX ought to be increased to around $2.18/unit. XTXI's dividend ought to be increased to around $2.30 share.
Now we will move on and discuss the recent El Paso acquisition.
It will be hard to decipher what acquistion or project is actually driving the distribution growth, as the Barnett Shale play will not be finished until mid 1st Q 2006. That means that the distribution increases from it will most likely not begin until the 2nd Q 2006. The El Paso acquisition recently closed, which leads me to believe that we will see a modest increase in the distribution from it in the 4th Q 2005 distribution (paid in February of 2006). I suspect that they will want a full Q of operating the assets to allow them to integrate them, finalize hedges, make any changes etc before being aggressive with the increases. Furthermore, I suspect that while the El Paso deal holds a lot of potential for increases in the distribution, they will be very paced in increasing the payout, methodically parceling it out over 4 or 5 Q's.
So, now to crunch some of the numbers. The El Paso deal ended up costing around 486 million, and the projected cashflow is around 55 million. We know that they already sold 2.85 units at $36.84 in another private placement raising around 105 million dollars. They are now attemting to sell another 3.5 million units at $33.25, which will raise around 116 million. That is a total of 6.35 million units at an average price of around $34.85/unit. Obviously they need to raise around $243 million to finance it 50/50. I am just going to assume that the other 20 million will get picked up in the permanenet debt portion and that it will get carried over until a leter offering (assume that the additional .5 million units that XTEX has made available in the over allotment are not sold). That means that the equity cost comes out to around 22 million (that would be the 6.35 million units sold multiplied by the now $2.18 distribution + the now .82 per unit GP take) all multiplied by 1.15 (again for coverage). The debt portion should cost around $18.7 million (again 7% borrowing cost). So collectively, that leaves around 14 million available. Again, i expect XTEX to holdback 15% for coverage, leaving 12.1 million to be paid out. That means that the GP will collect around 6 million, while the LP's will share the other 6 million. The MLP now have around 25.8 million LP units out outstanding thus the accretion becomes around .24/unit. Crosstex has actually project .30/unit so my numbers are a bit off, perhaps they expect a little higher cash flow, or at the time, did not project a drop in the unit price (higher financing cost). For the GP side, we assume the 6 million for the GP take and IDR's, plus they collect another 2.4 million for the 10 million LP units that they own plus they get the GP take on the newly issued units which comes to a grand total of around 15 million. After tax, is around 11.5 million. That comes to around .88/share, which is very close to the .90/share that they have projected. That would push the distribution at XTEx to around $2.42/unit and the dividend at XTXI to $3.10 per share. That also chimes with the $3.00 y end of 2006 projection that they have mentioned several times on several of the conference calls.