HOUSTON, Oct. 22, 2018 (GLOBE NEWSWIRE) -- Hi-Crush Partners LP (HCLP), or "Hi-Crush" or the "Partnership", today announced that it has acquired its general partner by acquiring Hi-Crush Proppants LLC for consideration of 11.0 million newly issued common units of the Partnership. Total value of the consideration for the acquisition, comprised entirely of the newly issued units, is $96.25 million based on Friday’s closing price of $8.75 per unit. Through the acquisition, which closed on October 21, 2018, Hi-Crush simplified its corporate structure, eliminating its incentive distribution rights (“IDRs”) and associated reset provisions, and acquiring the non-economic general partner interest in the Partnership. Additionally, effective with the completion of the acquisition, six members of the Board of Directors have resigned, including those seats previously held by Avista Capital Partners and its appointees. The current Board of Directors consists of the three independent directors and Mr. Robert E. Rasmus, Chief Executive Officer of Hi-Crush. Mr. Rasmus was elected Chairman of the Board. The Partnership expects to elect new members to its Board of Directors, including additional independent directors, and to hold meetings for the public election of directors in the future. The terms of the agreement were unanimously approved by the Partnership’s Conflicts Committee, which is comprised solely of independent directors of Hi-Crush’s Board of Directors.
“We are excited to reach an agreement and complete the buyout of our general partner,” said Mr. Rasmus. “This transaction meaningfully simplifies our corporate structure and advances our progress towards conversion from an MLP to a C-Corp sooner than alternate paths, and eliminates the need for any IDR reset. We believe this will result in immediate and long-term benefits for the Partnership as we continue the transformation of our business. These benefits include a lower cost of capital, increased appeal to a wider range of investors, improved corporate governance, enhanced financial flexibility, and ability to respond to the evolving dynamics of our business and industry, generating value for all stakeholders. Our team remains intensely focused on executing on our Mine. Move. Manage. operating strategy, which continues to position Hi-Crush as a strategic leader in the North American frac sand and proppant logistics market.”
“This transaction represents a major milestone as part of a series of strategic steps we’ve taken in recent months to align Hi-Crush’s structure and service offerings for success over the long-term,” said Laura C. Fulton, Chief Financial Officer of Hi-Crush. “These steps include our Senior Notes offering and new asset-backed credit facility completed this summer. The 100% equity financed buyout of our general partner provides us with additional flexibility as we continue to execute on our growth program, and accelerates our pathway to corporate conversion, likely during the first half of 2019. Using equity for the transaction and eliminating cash distributions that would have been associated with the IDR reset path’s requirement of three additional quarters of distributions above $0.7125 per unit allows us to conserve cash and strengthen the balance sheet going forward, in what today is a softer market environment. We look forward to progressing towards a more detailed assessment of a potential conversion transaction, and remain committed to mitigating or eliminating tax implications to unitholders.”
Distribution Declaration
The Partnership also announced today that the Board of Directors, comprised of the current four members, has declared a quarterly cash distribution of $0.225 per unit on all common units, or $0.90 on an annualized basis, for the third quarter of 2018, compared to a previous quarterly cash distribution of $0.75 per unit. The distribution will be paid on November 14, 2018, to all common unitholders of record on November 1, 2018.
“In light of our path to corporate conversion, as well as our assessment of current and future market conditions, our current Board of Directors, following the buyout of our general partner, has elected to better align our cash payout to a level more consistent with a growth-focused C-Corp,” said Mr. Rasmus. “The third quarter distribution of $0.225 per common unit reflects the Board’s ongoing commitment to capital return, as well as its desire to maintain a strong balance sheet.”
Hi-Crush to acquire GP for equity
Hi-Crush to acquire GP for equity
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Hi-Crush to acquire GP for equity
Preliminary Estimate of Selected Third Quarter 2018 Financial and Operational Results
Although the Partnership’s results of operations for the third quarter of 2018 are not yet final, based on the information and data currently available, the Partnership’s sales volumes totaled 2,775,361 tons for the three months ended September 30, 2018. The Partnership estimates, on a preliminary basis, that revenues for the third quarter of 2018 will be within a range of $210.0 to $215.0 million. Net income for the third quarter of 2018 is estimated to be within a range of $25.0 to $27.0 million, and earnings before interest, taxes, depreciation and amortization adjusted for earnings from equity method investments ("Adjusted EBITDA") for the third quarter 2018, is estimated to be within a range of $49.0 to $51.0 million.
This preliminary financial information reflects management’s estimates based solely upon information available to the Partnership as of the date hereof, and is the responsibility of management. The preliminary financial results presented above do not reflect a comprehensive statement of the Partnership’s financial results.
“The market for frac sand began to soften in early August due to a temporary decrease in completions activity, as reflected by the previously announced reduction in our volume outlook for the third quarter,” said Ms. Fulton. “This temporary weakness accelerated throughout September and continues through today. The decision reached on the distribution by the Board reflects these market conditions, and at the same time represents their confidence in the Partnership’s ability to generate strong cash flow in the first half of 2019 and beyond. This growth is supported by the construction and planned commencement of operations at our second Kermit facility in late December 2018, as well as the expansion of Wyeville starting up in the first quarter of 2019, both of which are backed by significant contracts with E&P customers. The coverage ratio on the third quarter distribution is approximately 1.8 times, reflecting our commitment to funding our capital return program without incurring debt, and better enabling our ongoing investment in the growth of the Partnership, particularly in our logistics capabilities.
“We will continue to evaluate each project on its own merits, and relative to other potential uses of cash, to provide the best returns for our unitholders today and in the future,” continued Ms. Fulton. “The Board retains significant flexibility with respect to future capital return decisions, and has not established a long-term distribution policy as we continue to perform the analysis and complete the steps required to effect a C-Corp conversion in the future.”
Any decision with respect to distribution amounts will be made by the Partnership’s Board of Directors on a quarterly basis, subject to company performance and market conditions. The evaluation of corporate structure transactions is subject to significant uncertainties, including general industry and market conditions. The Partnership has from time to time considered a number of potential corporate structure changes, such as corporate conversion. It is not possible, at this time, to determine whether or not any form of a corporate structure change may be consummated or to define the timing of such a transaction. Any such corporate structure change may require approval of the Partnership’s unitholders.
Although the Partnership’s results of operations for the third quarter of 2018 are not yet final, based on the information and data currently available, the Partnership’s sales volumes totaled 2,775,361 tons for the three months ended September 30, 2018. The Partnership estimates, on a preliminary basis, that revenues for the third quarter of 2018 will be within a range of $210.0 to $215.0 million. Net income for the third quarter of 2018 is estimated to be within a range of $25.0 to $27.0 million, and earnings before interest, taxes, depreciation and amortization adjusted for earnings from equity method investments ("Adjusted EBITDA") for the third quarter 2018, is estimated to be within a range of $49.0 to $51.0 million.
This preliminary financial information reflects management’s estimates based solely upon information available to the Partnership as of the date hereof, and is the responsibility of management. The preliminary financial results presented above do not reflect a comprehensive statement of the Partnership’s financial results.
“The market for frac sand began to soften in early August due to a temporary decrease in completions activity, as reflected by the previously announced reduction in our volume outlook for the third quarter,” said Ms. Fulton. “This temporary weakness accelerated throughout September and continues through today. The decision reached on the distribution by the Board reflects these market conditions, and at the same time represents their confidence in the Partnership’s ability to generate strong cash flow in the first half of 2019 and beyond. This growth is supported by the construction and planned commencement of operations at our second Kermit facility in late December 2018, as well as the expansion of Wyeville starting up in the first quarter of 2019, both of which are backed by significant contracts with E&P customers. The coverage ratio on the third quarter distribution is approximately 1.8 times, reflecting our commitment to funding our capital return program without incurring debt, and better enabling our ongoing investment in the growth of the Partnership, particularly in our logistics capabilities.
“We will continue to evaluate each project on its own merits, and relative to other potential uses of cash, to provide the best returns for our unitholders today and in the future,” continued Ms. Fulton. “The Board retains significant flexibility with respect to future capital return decisions, and has not established a long-term distribution policy as we continue to perform the analysis and complete the steps required to effect a C-Corp conversion in the future.”
Any decision with respect to distribution amounts will be made by the Partnership’s Board of Directors on a quarterly basis, subject to company performance and market conditions. The evaluation of corporate structure transactions is subject to significant uncertainties, including general industry and market conditions. The Partnership has from time to time considered a number of potential corporate structure changes, such as corporate conversion. It is not possible, at this time, to determine whether or not any form of a corporate structure change may be consummated or to define the timing of such a transaction. Any such corporate structure change may require approval of the Partnership’s unitholders.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Hi-Crush to acquire GP for equity
What do you think, Dan? Looks like Avista decided to bail. With no one on the board, they are free to sell the units they received in the market, right? Looks like the partnership is getting ready for tough times.."softness in the market that continues today" With today's drop in price I am down about 25%. If I am correct that there is nothing holding Avista from selling its units, then should we expect even further weakness?
Re: Hi-Crush to acquire GP for equity
I have updated my forecast/valuation model for HCLP and posted it to the EPG website.
I don't know what Avista plans to do with the units.
Just keep this in mind:
> Softness in frac sand demand is temporary. I think well completions and frac sand demand will go way up in 2019.
> Hi-Crush has a solid management team and they are the low-cost provider of Northern White sand.
> New dividend is just back to what they were paying in Q1. Hind site is 20/20 and the Q2 dividend of $0.75 was a mistake (IMO).
> Personally, I like the move to convert to a C-Corp. because it will allow a lot more hedge funds to buy the stock. Lots of hedge funds can't or just won't buy MLPs. At today's share price the annual yield is over 10%. Once it is a C-Corp. that yield will draw a lot more attention.
I don't know what Avista plans to do with the units.
Just keep this in mind:
> Softness in frac sand demand is temporary. I think well completions and frac sand demand will go way up in 2019.
> Hi-Crush has a solid management team and they are the low-cost provider of Northern White sand.
> New dividend is just back to what they were paying in Q1. Hind site is 20/20 and the Q2 dividend of $0.75 was a mistake (IMO).
> Personally, I like the move to convert to a C-Corp. because it will allow a lot more hedge funds to buy the stock. Lots of hedge funds can't or just won't buy MLPs. At today's share price the annual yield is over 10%. Once it is a C-Corp. that yield will draw a lot more attention.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Hi-Crush to acquire GP for equity
This is why the outlook for frac sand demand in 2019 is bullish: "Baker Hughes U.S. rig count rose +4 to 1,067. Oil rigs rose +4 to 873, the highest level since June 2015. Gas rigs rose +1 to 194. Misc rigs down -1. Oil rigs show signs of increasing again after being flat between Jun and Sept." - Reuters
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Hi-Crush to acquire GP for equity
But the concern is not the demand for sand, but the supply of cheaper sand. I know the argument for higher quality of NW sand. I am still long HCLP, because I hate selling at a loss. And the company makes a profit. Just not as much, I guess.
Re: Hi-Crush to acquire GP for equity
I stopped by the Hi-Crush office today after the JLL Energy Forum.
1. They will release Q3 financial results on October 30: Based on their preliminary guidance for Q3
> Revenues s/b $210 to $215 million (compares to $248.5 million in Q2)
> Earning per unit s/b $0.30 to $0.35
> Operating cash flow s/b $0.40 to $0.50 per unit with DCF more than enough to cover the $0.225 cash distribution to unit holders.
2. They are very happy to have resolved the Avista Capital issue by taking out the GP
3. Lots of work to do before going to a C-Corp. My SWAG is that it will happen late in Q2 2019.
4. Doubling of Kermit facility is on-track and should be ready by early Q1 2019, giving them a big share of the Permian market.
5. DUC well inventory is building and there should be a significant increase in well completions in 2019 when CapEx Budgets of the upstream companies get "reloaded". To get a better idea of what this means, listen to the Q3 conference calls of SLB and HAL.
1. They will release Q3 financial results on October 30: Based on their preliminary guidance for Q3
> Revenues s/b $210 to $215 million (compares to $248.5 million in Q2)
> Earning per unit s/b $0.30 to $0.35
> Operating cash flow s/b $0.40 to $0.50 per unit with DCF more than enough to cover the $0.225 cash distribution to unit holders.
2. They are very happy to have resolved the Avista Capital issue by taking out the GP
3. Lots of work to do before going to a C-Corp. My SWAG is that it will happen late in Q2 2019.
4. Doubling of Kermit facility is on-track and should be ready by early Q1 2019, giving them a big share of the Permian market.
5. DUC well inventory is building and there should be a significant increase in well completions in 2019 when CapEx Budgets of the upstream companies get "reloaded". To get a better idea of what this means, listen to the Q3 conference calls of SLB and HAL.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group