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Crosstex Energy, AŞ Message Board

  • kingedxxxxx kingedxxxxx Jan 26, 2010 9:09 PM Flag

    Thoughts on private placement

    It appears that Crosstex was unable to work things out with current debtholders. I figure they wanted lower interest rates, later dates on maturities, and potentially even better ratios.

    I think many of us thought that the reduction of debt through the preferreds was something that the debtholders and Crosstex may have negotiated as part of a plan to refinance the debt. After seeing this private placement, I believe this was not orchestrated by the debtholders at all and may have been part of a plan from management and/or Blackstone.

    The bad news is that Crosstex will appear to be unable to get current debt refinanced and is now having to look at market to find better rates and/or maturity dates.

    The good news is that Crosstex must be somewhat confident that they can pull this off in this difficult environment. As a poster mentioned, there is no dire emergency to do the refinance or placement right now. They could have waited for quite a while on market to improve to do this.

    Another positive is that the word "unsecured" means that there probably be limited restrictions on this new debt. I believe a good portion of current debt is secured.

    Now, more bad news. I think unsecured debt demands a higher interest rate as you are increasing your risk. For example, I can get a car loan at a pretty darn good rate since it is secured by the car itself. If I get a loan without collateral (like that would happen), they will require a much higher interest rate.

    I have not had time to research typical rates on different forms of debt, but I expect the interest rate to be quite high. Just think, BlackStone is getting minimum 10% on the preferred shares which are very limited in recovery if Crosstex fails. The unsecured debt will likely be somewhere around 9 to 9.5% in my hasty estimation.

    Here is the big positive, however, which is why this is very good for Crosstex if they can pull it off. All of this debt would mature in 2018. Thus, Crosstex only pays interest on this debt. NO PRINCIPAL PAYMENTS - NOTHING! Cash that would have gone to principal payments on part of existing debt is now freed up for growth opportunities. We can more quickly grow the company for the next five or six years and then worry about refinancing again.

    We go North from here. GO XTXI AND XTEX!

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    • Two quick view king: you said, "The bad news is that Crosstex will appear to be unable to get current debt refinanced and is now having to look at market to find better rates and/or maturity dates." I have a feeling that XTEX/XTXI management with Blackstone looking over their shoulder said screw the banks...we could get better rates from Tony Soprano, therefore we'll put out the paper and point two, in reading about the debt offering, XTEX/XTXI are using $3B worth of assets as collateral.

      • 1 Reply to ross.john51
      • I have only seen the news release on the 700 million debt and have not seen any other specific details. The news release states the 700 million as senior unsecured debt. This means that Crosstex is not attaching any assets as collateral to this debt. However, senior debt is basically first in line to other unsecured debt and equity holders which means they get the first crack at the assets anyway.

        In a way, it is bad news that the current debtholders were not willing to compromise on interest rates and whatever other terms being negotiated. It does not show confidence in Crosstex from their point of view.

        This negated some of the pop we could have had in Crosstex today. Plus, we now have to play a waiting game on this offering. Can Crosstex get it done and at what rate?

        Yes, Blackstone's involvement is a very good asset in Crosstex achieving this goal. I anticipate a rate of 9-9.5%. Would like a lower rate, but to not have any principal due until 2018 is strong for Crosstex to use available cash to help grow the business again.

    • I forgot to mention that Blackstone is likely playing a big role in this placement. It is even possible that their help with the placement was even negotiated as part of the sweet deal they got on the preferreds.

      Blackstone has probably already found a good portion of the funds out there for this placement. It helps that the are on the BOD to show own interest in the future of Crosstex.