PAA's shuffle
PAA's shuffle
Hi Dan, In your opinion, does PAA/PAGP's MLP "efficiency" reorganization change the outlook for the investment? (Some of these MLP reorganizations, NGLS/Targa eg, have come with a haircut for investors.) The Tues morning CC may tell us more.
Re: PAA's shuffle
Mr. Market seems to like it today. I am traveling this week and I will need to spend some time seeing how this impacts my forecast model. PAA is a first class midstream company. - Dan
Plains All American Pipeline, L.P. PAA provided its EBITDA guidance for full-year 2016 and distribution guidance for the third quarter, apart from disclosing a simplification of its capital structure.
Details of the Simplification
Plains All American and Plains AAP, L.P. have entered into an agreement, under which the former will let go its 2% general partner stake in the latter in exchange of the issuance of 245.5 million common shares by Plains All American and the assumption of all of Plain AAP’s liability. The deal is valued at $7.2 billion. Upon closing of the transaction, Plains AAP is entitled to a 34.8% ownership interest in Plains All American.
Plains AAP is an affiliate of Plains GP Holdings, L.P. (PAGP), a holding company of the master limited partnership, Plains All American Pipeline, which through its subsidiaries, is involved in the transportation, storage and marketing of crude oil and refined products.
Distribution Guidance
Subsequent to the cancellation of its distribution and incentive rights in Plains AAP, Plains All American announced a distribution of 55 cents per share for the third quarter of 2016, down 21% from the second-quarter distribution of 70 cents.
The step was taken to improve the partnership’s overall credit profile and better align its interests with those of its shareholders, including Plains GP Holdings.
Plains All American Pipeline, L.P. PAA provided its EBITDA guidance for full-year 2016 and distribution guidance for the third quarter, apart from disclosing a simplification of its capital structure.
Details of the Simplification
Plains All American and Plains AAP, L.P. have entered into an agreement, under which the former will let go its 2% general partner stake in the latter in exchange of the issuance of 245.5 million common shares by Plains All American and the assumption of all of Plain AAP’s liability. The deal is valued at $7.2 billion. Upon closing of the transaction, Plains AAP is entitled to a 34.8% ownership interest in Plains All American.
Plains AAP is an affiliate of Plains GP Holdings, L.P. (PAGP), a holding company of the master limited partnership, Plains All American Pipeline, which through its subsidiaries, is involved in the transportation, storage and marketing of crude oil and refined products.
Distribution Guidance
Subsequent to the cancellation of its distribution and incentive rights in Plains AAP, Plains All American announced a distribution of 55 cents per share for the third quarter of 2016, down 21% from the second-quarter distribution of 70 cents.
The step was taken to improve the partnership’s overall credit profile and better align its interests with those of its shareholders, including Plains GP Holdings.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: PAA's shuffle
Stifel's comments below:
PAA/PAGP Announce Simplification
Plains All American Pipeline, L.P. (PAA, $26.80, Hold) and Plains GP Holdings, LP (PAGP, $9.90, Hold)
announced a simplification transaction which will eliminate incentive distribution rights and the economic rights
associated with the 2% general partner interest. By undertaking this transaction, Plains achieves several objectives
previously outlined as being crucial to a simplification, including one corporate structure that aligns its equity
stakeholders’ interests, improves its credit profile, lowers its cost of capital and strengthens its coverage ratio. Our
initial view of this transaction is neutral as it was approximately in line with our expectation. We continue to rate
units of PAA and PAGP Hold.
Terms of the transaction
PAA will issue 245.5 million new units or 0.3755 PAA units per PAGP Unit and assume $593 million in debt. This
equates to a transaction value of approximately $7.2 billion. At the time of closing (anticipated in 4Q16) PAA will have
approximately 643 million units outstanding with PAGP unitholders controlling approximately 35%. Based on
a PAA closing price of $26.80, PAGP units are valued at approximately $10.06 or a 1.6% premium to today’s closing
price. Management noted the transaction is already approved by the conflicts committee established by PAGP's board
and is not a taxable transaction to PAGP unitholders.
Distributions Headed Lower
PAA and PAGP also announced distributions for the second quarter which are unchanged at $0.70 and $0.231
respectively. In conjunction, PAA announced it intends to lower its third quarter distribution to $0.55 from $0.70. This
represents a 21.4% reduction to existing PAA unitholders and PAGP unitholders are expected to realize a 10.5%
decrease.
While this announcement positions Plains for a lower for longer scenario, we are maintaining our Hold rating on PAA
and PAGP. The company is hosting a conference call in the morning prior to the open and we will have additional
details after the call.
Pricing as of close on 7/11/16.
PAA/PAGP Announce Simplification
Plains All American Pipeline, L.P. (PAA, $26.80, Hold) and Plains GP Holdings, LP (PAGP, $9.90, Hold)
announced a simplification transaction which will eliminate incentive distribution rights and the economic rights
associated with the 2% general partner interest. By undertaking this transaction, Plains achieves several objectives
previously outlined as being crucial to a simplification, including one corporate structure that aligns its equity
stakeholders’ interests, improves its credit profile, lowers its cost of capital and strengthens its coverage ratio. Our
initial view of this transaction is neutral as it was approximately in line with our expectation. We continue to rate
units of PAA and PAGP Hold.
Terms of the transaction
PAA will issue 245.5 million new units or 0.3755 PAA units per PAGP Unit and assume $593 million in debt. This
equates to a transaction value of approximately $7.2 billion. At the time of closing (anticipated in 4Q16) PAA will have
approximately 643 million units outstanding with PAGP unitholders controlling approximately 35%. Based on
a PAA closing price of $26.80, PAGP units are valued at approximately $10.06 or a 1.6% premium to today’s closing
price. Management noted the transaction is already approved by the conflicts committee established by PAGP's board
and is not a taxable transaction to PAGP unitholders.
Distributions Headed Lower
PAA and PAGP also announced distributions for the second quarter which are unchanged at $0.70 and $0.231
respectively. In conjunction, PAA announced it intends to lower its third quarter distribution to $0.55 from $0.70. This
represents a 21.4% reduction to existing PAA unitholders and PAGP unitholders are expected to realize a 10.5%
decrease.
While this announcement positions Plains for a lower for longer scenario, we are maintaining our Hold rating on PAA
and PAGP. The company is hosting a conference call in the morning prior to the open and we will have additional
details after the call.
Pricing as of close on 7/11/16.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group