NuStar GP Holdings
NuStar GP Holdings (NSH) and its limited partnership, NuStar Energy (NS), were the top two MLP losers in the week ending February 9. NuStar GP Holdings and NuStar Energy fell 25.1% and 24.7% last week, respectively. Apart from general weakness, the duo fell due to the following factors:
- the announcement of a merger between NuStar GP Holdings and NuStar Energy
- a distribution reset
- weak earnings outlook
According to the merger terms, NuStar GP Holdings agreed to merge into NuStar Energy in an all-stock deal. NuStar GP Holdings’ economic GP interest and IDRs would be canceled after the merger is complete. In return, NuStar Energy would issue 0.55 of its common units to each NuStar GP Holdings unitholder.
Simplifying the capital structure is expected to lower the partnership’s cost capital. At the same time, the issuance of common units was slightly dilutive to NuStar Energy’s existing unitholders amid weak distribution coverage. NuStar Energy reported a distribution coverage of 0.41x in 4Q17, which warranted a distribution. The partnership expects to announce a quarterly distribution of $0.6 per unit starting in 1Q18, which represents a cut of ~45% compared to the fourth quarter distribution ($1.095 per unit). The distribution cut is expected to improve the partnership’s coverage and leverage position in the coming quarters.
NGL Energy Partners
NGL Energy Partners (NGL), a midstream MLP involved mainly in crude oil, refined products, and NGLs (natural gas liquids) logistics, terminaling, and marketing, was the third-highest MLP loser last week. NGL Energy shares crashed 17.2% on Friday, which resulted in a weekly loss of 19.1%.
The huge decline on Friday could be attributed to a reduction in the partnership’s earnings targets for this fiscal year. NGL Energy’s fiscal year ends on March 31. NGL Energy expects to end this fiscal year with an adjusted EBITDA of $440 million–$450 million, which at the midpoint represents a 6.0% decline compared to the previous guidance.
According to the earnings release, the reduced earnings “reflect the announced asset sales, improved results in Water Solutions and under-performance in Refined Products and Renewables.” NGL’s Refined Products and Renewables segment’s adjusted EBITDA fell to $9.1 million in 3Q18—compared to $29.8 million in the same quarter the previous year.