Buckeye to Issue $500M Senior Notes

Zacks

Buckeye Partners L.P. (BPL) announced that it will issue $500 million, 4.15% senior unsecured notes due Jul 1, 2023. The partnership will utilize the proceeds from this transaction to repay the outstanding amount on the maturity of its previously issued $300 million, 4.625% notes due Jul 15, 2013 and for general corporate purposes.

Several financial institutions will facilitate the transaction. The notes offering will expire on Jun 10, 2013 and is subject to customary closing conditions. Buckeye Partners expects to receive net proceeds of roughly $495.8 million after deductions relating to underwriting discount and offering expenses.

The partnership often engages in notes issuance especially to refinance its existing debts. Buckeye Partners’ last issuance was made in Jan 2011 when it declared an offering of $650 million, 4.875% senior notes due Feb 1, 2021 to fund a part of the purchase amount of 80% interest acquisition in Bahamas Oil Refining Company International Limited and for general corporate purposes.

Although the partnership managed to lower its debt level by 10.2% year over year to $2,455.4 million as of Mar 31, 2013, we believe the current issuance will likely to increase Buckeye Partners’ debt level by $200 million. Its current long term debt to capital ratio is at 49.8%, higher than its peer group average of 43.9%.

Post the issue, the long-term debt to capital ratio will rise to 51.5%. Interest expenses for Buckeye would also increase owing to the new offerings. In addition, the partnership’s current senior unsecured rating is reaffirmed at Baa3 by Moody’s which will help Buckeye to raise debts at favorable interest rates and reduce its cost of borrowing.

Presently, Buckeye Partners carries a Zacks Rank #3 (Hold). Other pipeline stocks looking up are Kinder Morgan Energy Partners, L.P. (KMP), Access Midstream Partners, L.P. (ACMP) and Enbridge Energy Management LLC (EEQ). All these stocks at present retain a Zacks Rank #2 (Buy).

Based in Houston, Texas, Buckeye Partners, LP owns and operates refined petroleum products pipeline systems in the United States.

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