MEMP does have to cut distributions for awhile, but they should make it; especially if natural gas and NGL prices bounce back.
> MEMP's production mix is 55% natural gas, 27% crude oil and 18% NGLs.
> The bank credit facility is an "asset based" loan ($925 million facility with $792 million drawn at 3-31-2016)
> MEMP should generate over $200 million of cash flow from operations in 2016, compared to a capital expenditure budget of $65-$75 million. They have positive DCF.
HOUSTON, April 14, 2016 (GLOBE NEWSWIRE) -- Memorial Production Partners LP (MEMP) (“MEMP” or “the Partnership”) announced today that it has entered into an amendment to its revolving credit facility and has completed the semi-annual redetermination of its credit facility borrowing base. The redetermination resulted in a revised borrowing base of $925 million, a decrease of 21% from the previous level of $1,175 million. In addition, MEMP and the commercial bank lending group have agreed to amend certain terms of MEMP’s revolving credit facility. Management believes the revised credit facility will provide additional flexibility to the Partnership. Among other things, the new terms include:
•Addition of maximum first lien secured leverage covenant of 3.25x
•Additional restrictions on future cash distributions: •If the total debt ratio (total debt at the time of the distribution divided by consolidated EBITDAX for the previous four quarters) is greater than 4.0x, the Partnership may only make a distribution if it has availability subject to certain liquidity and financial tests and in any such case up to a maximum total cash distribution amount of $4.15 million per quarter
•If the total debt ratio is less than 4.0x, the Partnership may only make a distribution if it has availability, pro forma for such distribution, of at least 15% of the borrowing base, but if it satisfies such tests then cash distributions are not limited to any total amount
At the end of the fourth quarter of 2015, the Partnership had a first lien secured leverage ratio of 2.5x and an estimated total debt ratio of 5.9x. While the board of directors of MEMP's general partner has not yet made a determination on any cash distribution with respect to the first quarter of 2016, if the total debt ratio level remains above 4.0x through the first quarter of 2016, the terms of the credit facility would prohibit the Partnership from distributing greater than $4.15 million in the aggregate for such quarter. With approximately 82.9 million common units currently outstanding, the maximum possible quarterly distribution per unit in such a circumstance would be approximately $0.05 per unit, or $0.20 per unit on an annualized basis.
As of March 31, 2016, MEMP had total debt outstanding of $2.0 billion, including $1.2 billion of senior notes and $792 million under its revolving credit facility. Pro forma for the revised borrowing base, available borrowing capacity as of March 31, 2016 would have been $131 million (including $2.1 million in letters of credit).
John A. Weinzierl, Chairman and Chief Executive Officer of the general partner of MEMP commented, “I would first like to thank the twenty-eight banks in MEMP’s credit facility for their continued support during this volatile period for the entire industry. The downward revision on the borrowing base is largely attributable to the deterioration of commodity prices and was in-line with our expectations. Giving effect to the credit facility amendment announced today, along with significant cash flow generation throughout the year, MEMP should have the liquidity it needs to execute its strategies to reduce the partnership’s total leverage, which we believe will benefit all of MEMP’s stakeholders.”
MEMP
Re: MEMP
Stifel commentary:
Memorial Production Partners LP (MEMP, Hold, $2.16) announced the results of its semi-annual spring credit facility
redetermination. While the partnership received additional covenants, we do not anticipate the partnership will trigger debt
covenants through FY17. We view the announced results positively although unitholders will see the distribution reduced
to at least $0.05/unit as a result.
Two Takeaways: (1) The partnership’s credit facility was reduced 21% to $925
million from $1.175 billion. We view the announced reduction inline with our prior
estimates. The partnership is approximately 86% drawn on the facility
post-redetermination and, in turn, we anticipate the partnership has sufficient
liquidity to manage through this environment given the FY16 capex plans which we
estimate will generate modest excess free cash flow for the partnership. (2) The
partnership received several additional covenants as part of the redetermination.
The partnership previously only had an interest coverage covenant of at least 2.5x
and current ratio of 1.0x. In addition to the prior covenants, the partnership has first
lien secured leverage covenant of 3.25x. Additionally, the partnership is
subject to restrictions on future cash distributions pending total leverage metric of
4.0x. If the partnership is above 4.0x, the partnership can only pay
$4.15 million (or approximately $0.05/unit) subject to financial tests. Further, the
partnership is restricted to distributions assuming it retains 15% capacity under the
revolver if total leverage is below 4.0x.
Maintain Hold. We are updating our model to account for the change in
distribution policy as we anticipate the partnership will be limited to a maximum of
$0.05/unit through FY17. We note the partnership is not obligated to make a
distribution. While we view the announced redetermination favorably for the
long-term sustainability, we are maintaining our Hold rating at this time.
Memorial Production Partners LP (MEMP, Hold, $2.16) announced the results of its semi-annual spring credit facility
redetermination. While the partnership received additional covenants, we do not anticipate the partnership will trigger debt
covenants through FY17. We view the announced results positively although unitholders will see the distribution reduced
to at least $0.05/unit as a result.
Two Takeaways: (1) The partnership’s credit facility was reduced 21% to $925
million from $1.175 billion. We view the announced reduction inline with our prior
estimates. The partnership is approximately 86% drawn on the facility
post-redetermination and, in turn, we anticipate the partnership has sufficient
liquidity to manage through this environment given the FY16 capex plans which we
estimate will generate modest excess free cash flow for the partnership. (2) The
partnership received several additional covenants as part of the redetermination.
The partnership previously only had an interest coverage covenant of at least 2.5x
and current ratio of 1.0x. In addition to the prior covenants, the partnership has first
lien secured leverage covenant of 3.25x. Additionally, the partnership is
subject to restrictions on future cash distributions pending total leverage metric of
4.0x. If the partnership is above 4.0x, the partnership can only pay
$4.15 million (or approximately $0.05/unit) subject to financial tests. Further, the
partnership is restricted to distributions assuming it retains 15% capacity under the
revolver if total leverage is below 4.0x.
Maintain Hold. We are updating our model to account for the change in
distribution policy as we anticipate the partnership will be limited to a maximum of
$0.05/unit through FY17. We note the partnership is not obligated to make a
distribution. While we view the announced redetermination favorably for the
long-term sustainability, we are maintaining our Hold rating at this time.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group