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NuStar Closes Notes Offering

Zacks Equity Research

NuStar Logistics, L.P. – a subsidiary of publicly traded energy master limited partnership (MLP) NuStar Energy L.P. (NS) announced the closure of its previously announced public offering of hybrid notes. NuStar priced 7.625% fixed-to-floating rate subordinated notes due 2043 worth $402.5 million.

The offering included a 30-day option to underwriters to purchase additional notes worth $52.5 million. This over-allotment option was exercised in full on January 16, 2013.

The public offering – including underwriter allotment – fetched approximately $391.5 million for the partnership. The net proceeds from this offering will be utilized by the partnership to reduce debt under its revolving credit facility and for other partnership purposes. NuStar may re-borrow the same to pay for a part of the purchase price of TexStar NGL assets or growth capital related to the TexStar Midstream Services LP acquisition.

San Antonio, Texas-based NuStar Energy engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K. The company has three business segments, namely, Storage, Transportation and Asphalt and Fuels Marketing.

NuStar,  which was spun off from the U.S. refiner Valero Energy Corp. (VLO) in 2006 – currently retains a Zacks Rank #3 (Hold).

Over the last few years, NuStar has consolidated its business through a combination of organic efforts and accretive acquisitions. However, we believe the higher operating expenses associated with this expanded asset base may lead to reduced returns in the years to come.

We also remain concerned about NuStar’s high debt levels, which leave the partnership vulnerable to an extended downturn. As of September 30, 2012, NuStar had long-term debt (including current portion) of more than $2 billion, representing a debt-to-capitalization ratio of around 43%.

However, there are other MLP’s expected to perform better than NuStar, which include Boardwalk Pipeline Partners, LP (BWP) having Zacks Rank #1 (Strong Buy) and Magellan Midstream Partners L.P. (MMP) having Zacks Rank #2 (Buy).

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