Agreement with Con Edison to own and expand Crestwood’s Northeast
natural gas storage and pipeline business through newly formed 50/50
joint venture named Stagecoach Gas Services LLC
Approximately $975 million net cash proceeds to be used to retire
debt; positioning Crestwood with substantially improved leverage and
liquidity; transaction expected to close in second quarter
First quarter 2016 distribution of $0.60 per unit ($2.40 per unit
annualized); reduced payout provides top-tier distribution coverage and
flexibility to reduce debt or reinvest operating cash flow
2016 outlook updated for strategic joint venture and revised
distribution; remaining operations in-line with previous guidance; first
quarter 2016 results to be announced May 3, 2016
HOUSTON--(BUSINESS WIRE)--
Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood Equity” or
“Crestwood”) today provided an update on its 2016 strategic plan,
announcing a new joint venture with Consolidated Edison (NYSE: ED)(“Con
Edison”), declaring its first quarter 2016 distribution, and updating
its 2016 outlook.
In a separate press release issued today, Crestwood announced it has
entered into definitive agreements with Con Edison to form a joint
venture to own and develop Crestwood’s existing natural gas pipeline and
storage business located in northern Pennsylvania and southern New York.
These premier natural gas pipeline and storage facilities provide a
critical link between robust natural gas supply sources and Northeast US
demand markets. Subject to customary closing conditions and purchase
price adjustments, Crestwood will contribute its existing natural gas
pipeline and storage business to a new entity, Stagecoach Gas Services
LLC (“Stagecoach Gas Services”), and a subsidiary of Con Edison
Transmission, Inc. (“Con Edison Transmission”) which is a wholly-owned
subsidiary of Con Edison, will purchase a 50 percent equity interest in
Stagecoach Gas Services for approximately $975 million, with an implied
market value of almost $2 billion. The transaction is expected to be
substantially completed in the second quarter of 2016.
Highlights of the Transaction:
-
Blue chip joint-venture partner:
Aligns Crestwood’s interests around its Northeast Storage and
Transportation platform with Con Edison, a strong investment grade
partner and whose utility subsidiaries are premier natural gas
consumers in the Northeast US market.
-
Solidifies franchise position: Strengthens
Crestwood’s competitive position in a highly attractive market which
requires substantial natural gas infrastructure in the future.
-
Strong asset valuation: Cash
consideration of $975 million implies transaction multiple of ~13x
current EBITDA (on a 50% basis), which provides Crestwood the
opportunity to capture substantial value during a distressed commodity
environment while maintaining future upside opportunities.
-
Catalyst for substantial deleveraging and
liquidity: Transaction proceeds allow for
substantial debt reduction resulting in a pro forma leverage ratio of
approximately 3.5x. Coupled with Crestwood’s revised distribution
announced today, eliminates the need for any capital markets offerings
to execute Crestwood’s 5-year growth objectives.
“With today’s announcements, the joint venture with Con Edison and the
reduced payout of our quarterly distribution, Crestwood is providing a
clear and comprehensive plan to improve our competitive position,
substantially strengthen our balance sheet and broaden our appeal to
investors,” stated Robert G. Phillips, Chairman, President and Chief
Executive Officer of Crestwood’s general partner. “The partnership with
Con Edison will reposition Crestwood’s Northeast pipeline and storage
assets to more effectively compete for future expansion opportunities as
Northeast demand for natural gas increases in the future. With the
proceeds from the Con Edison transaction and the decision to reduce our
distributions to a more appropriate level given the realities of the
current energy market, Crestwood will materially reduce our long-term
debt and gain the flexibility to invest retained available cash to drive
long-term value creation for the partnership. We believe these strategic
steps will significantly improve Crestwood’s investment profile with a
top tier balance sheet, strong distribution coverage, and ample
liquidity to execute our 5-year plan without accessing the capital
markets.”
Stagecoach Gas Services, which will be managed by Crestwood and operated
by a newly formed services company, will own four natural gas storage
facilities (Stagecoach, Thomas Corners, Steuben and Seneca Lake) with a
combined storage capacity of approximately 41 Bcf and three natural gas
pipelines (MARC I, North/South and the East Pipeline) with a combined
throughput capacity of 2,960 Mmcf per day. The assets boast a highly
strategic asset footprint situated between robust Northeast natural gas
supply sources and several leading U.S. natural gas demand centers,
including New York City and New England. The assets have a diversified
set of high quality customers with approximately 60 percent carrying an
investment grade rating. Capacity across the system has consistently
been contracted at levels near 100 percent capacity, backed with
long-term firm contracts.
For the first three years following the closing, Con Edison will receive
65%, 65% and 60%, respectively, of the cash distributed by Stagecoach
Gas Services. Thereafter, the joint venture members will receive their
equity ownership percentage of the cash distributed. Con Edison and
Crestwood will each make capital contributions to fund growth projects
and maintenance capital expenditures in accordance with their equity
ownership percentage. The joint venture’s operations are expected to
generate Adjusted EBITDA of approximately $145 million for the full year
2016 with numerous identified growth opportunities around the system
that Con Edison and Crestwood will jointly pursue through the new joint
venture.
Distribution Declaration
The board of directors of Crestwood’s general partner has declared the
partnership’s quarterly cash distribution of $0.60 per limited partner
unit ($2.40 annually) for the quarter ended March 31, 2016, a reduction
of approximately 56% from the fourth quarter 2015 distribution.
Crestwood will issue 1,436,797 preferred units to its preferred
unitholders in lieu of cash distributions. Distributions will be paid on
May 13, 2016, to unitholders of record as of May 6, 2016.
Robert T. Halpin, Senior Vice President and Chief Financial Officer,
commented, “Consistent with our stated 2016 strategy, the action
Crestwood is taking today will position Crestwood to emerge from this
challenging market as a stronger, better capitalized company. The new
distribution level, coupled with our strategic joint venture with Con
Edison, provides a catalyst for Crestwood to position our balance sheet
at the top of our peer group and provides investors with visibility to
sustainable current distributions and financial strength through a
challenging market environment.”
Revised 2016 Outlook
The following projections were revised based on the assumption the Con
Edison joint venture closes June 1, 2016. In 2016, our results
attributed to Stagecoach Gas Services in the Storage and Transportation
segment will include five months of Crestwood’s ownership at 100% and
seven months of Crestwood’s proportionate share of Stagecoach Gas
Services’ earnings of 35%. As a result, the mid-year timing of the joint
venture will have a disproportionate impact on period-over-period
comparisons for Adjusted EBITDA, distributable cash flow, and
distribution coverage for periods beginning in the second quarter 2016
through full-year 2017. The following projections are subject to risks
and uncertainties as described in the “Forward-Looking Statements”
section at the end of this release.
-
Adjusted EBITDA of $435 million to $465 million
-
Contribution by operating segment is set forth below:
$US millions
|
|
Adj. EBITDA Range
|
Operating Segment
|
|
Low
|
|
High
|
Gathering & Processing
|
|
$235
|
-
|
$250
|
Storage & Transportation
|
|
170
|
-
|
180
|
Marketing, Supply & Logistics
|
|
95
|
-
|
100
|
Less: Corporate G&A
|
|
(65)
|
|
(65)
|
FY 2016 Totals
|
|
$435
|
-
|
$465
|
-
Distributable cash flow of $275 million to $305 million
-
Cash distributions of $2.40 per common unit resulting in full-year
2016 cash distribution coverage ratio of approximately 1.6x to 1.8x
-
Forecasted year-end 2016 leverage ratio of approximately 3.9x
-
Growth project capital spending and joint venture contributions in the
range of $50 million to $75 million
-
Maintenance capital spending in the range of $16 million to $18 million
Morgan Stanley & Co. LLC served as Crestwood’s financial advisor on the
joint venture and evaluation of its 2016 financial objectives.
Crestwood to Host Conference Call to Discuss 2016 Strategic Plan
Update
Crestwood will conduct a call to discuss the contents of this release
with investors and analysts of Crestwood today at 9:00 a.m. Eastern Time
(8:00 a.m. Central Time) which will be broadcast live over the Internet.
Investors may participate in the call either by phone or audio webcast.
By Phone:
|
|
Dial 877-407-8037 or 201-689-8037 at least 10 minutes before the
call and ask for the Crestwood Call. A replay will be available for
7 days by dialing 877-660-6853 or 201-612-7415 and using the access
code 13635906#.
|
|
|
|
By Webcast:
|
|
Connect to the webcast via the “Presentations” page of Crestwood’s
Investor Relations website at www.crestwoodlp.com.
Please log in at least 10 minutes in advance to register and
download any necessary software. A replay will be available
shortly after the call for 90 days.
|
Non-GAAP Financial Measures
Adjusted EBITDA and distributable cash flow are non-GAAP financial
measures. The accompanying schedules of this news release provide
reconciliations of these non-GAAP financial measures to their most
directly comparable financial measures calculated and presented in
accordance with GAAP. Our non-GAAP financial measures should not be
considered as alternatives to GAAP measures such as net income or
operating income or any other GAAP measure of liquidity or financial
performance.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning
of the U.S. Private Securities Litigation Reform Act of 1995 and Section
21E of the Securities and Exchange Act of 1934. The words “expects,”
“believes,” anticipates,” “plans,” “will,” “shall,” “estimates,” and
similar expressions identify forward-looking statements, which are
generally not historical in nature. Forward-looking statements are
subject to risks and uncertainties and are based on the beliefs and
assumptions of management, based on information currently available to
them. Although Crestwood believes that these forward-looking statements
are based on reasonable assumptions, it can give no assurance that any
such forward-looking statements will materialize. Important factors that
could cause actual results to differ materially from those expressed in
or implied from these forward-looking statements include, but are not
limited to, (i) our ability to complete the announced joint venture upon
the terms and conditions set forth in the definitive transaction
agreements, including without limitation receipt of regulatory approvals
and the satisfaction of other closing conditions contemplated thereby;
(ii) our ability to deploy the net cash proceeds received in the
announced joint venture to retire debt in a manner that significantly
reduces leverage, reduces debt service costs and improves our financial
ratios; (iii) short- and long-term fluctuations in crude oil, natural
gas and NGL prices, failure or delays by customers in achieving expected
production in their oil and gas projects, and other factors, risks and
uncertainties described in Crestwood’s reports filed with the Securities
and Exchange Commission, including its Annual Report on Form 10-K and
its subsequent reports, which are available through the SEC’s EDGAR
system at www.sec.gov
and on our website. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management’s view only as of
the date made, and Crestwood assumes no obligation to update these
forward-looking statements.
Tax Notice to Foreign Investors
This release serves as qualified notice to nominees under Treasury
Regulation Sections 1.1446-4(b)(4) and (d). Please note that 100% of
Crestwood’s distributions to foreign investors are attributable to
income that is effectively connected with a United States trade or
business. Accordingly, all of Crestwood’s distributions to foreign
investors are subject to federal income tax withholding at the highest
effective tax rate for individuals or corporations, as applicable.
Nominees, and not Crestwood, are treated as the withholding agents
responsible for withholding on the distributions received by them on
behalf of foreign investors.
About Crestwood Equity Partners LP
Houston, Texas, based Crestwood Equity Partners LP (NYSE: CEQP) is a
master limited partnership that owns and operates midstream businesses
in multiple unconventional shale resource plays across the United
States. Crestwood Equity is engaged in the gathering, processing,
treating, compression, storage and transportation of natural gas;
storage, transportation, terminalling, and marketing of NGLs; and
gathering, storage, terminalling and marketing of crude oil.
|
CRESTWOOD EQUITY PARTNERS LP
|
Full Year 2016 Adjusted EBITDA and Distributable Cash Flow
Guidance
|
Reconciliation to Net Income
|
(in millions)
|
(unaudited)
|
|
|
|
Expected 2016 Range
|
|
|
Low – High
|
Net income
|
|
$15 – $45
|
Interest and debt expense, net
|
|
126 – 128
|
Depreciation, amortization and accretion
|
|
260
|
Unit-based compensation charges
|
|
15
|
Earnings from unconsolidated affiliates
|
|
(40) – (45)
|
Adjusted EBITDA from unconsolidated affiliates
|
|
57 – 62
|
Adjusted EBITDA
|
|
$435 - $465
|
|
|
|
Cash interest expense (a)
|
|
(119) – (121)
|
Maintenance capital expenditures (b)
|
|
(16) – (18)
|
Other
|
|
(10) – (11)
|
Distributable cash flow (c)
|
|
$290 – $320
|
Distributions to Crestwood Niobrara preferred
|
|
(15)
|
Distributable cash flow attributable to CEQP common unitholders
|
|
$275 – $305
|
|
(a)
|
|
Cash interest expense less amortization of deferred financing costs
plus bond premium amortization.
|
(b)
|
|
Maintenance capital expenditures are defined as those capital
expenditures which do not increase operating capacity or revenues
from existing levels.
|
(c)
|
|
Distributable cash flow is defined as Adjusted EBITDA, less cash
interest expense, maintenance capital expenditures, income taxes and
deficiency payments (primarily related to deferred revenue).
Distributable cash flow should not be considered an alternative to
cash flows from operating activities or any other measure of
financial performance calculated in accordance with generally
accepted accounting principles as those items are used to measure
operating performance, liquidity, or the ability to service debt
obligations. We believe that distributable cash flow provides
additional information for evaluating our ability to declare and pay
distributions to unitholders. Distributable cash flow, as we define
it, may not be comparable to distributable cash flow or similarly
titled measures used by other corporations and partnerships.
|

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Source: Crestwood Equity Partners LP