Current BBEP Stock Info

Breitburn Energy Partners (ticker: BBEP), a master limited partnership (MLP) E&P with operations throughout the United States, announced a $1 billion investment from EIG Global Energy Partners (EIG) in a press release on March 29, 2015. The agreements include $350 million of perpetual convertible preferred units (priced at $7.50 per share, a 27% premium to BBEP’s closing price on March 27) and $650 million of senior secured notes. The offerings are expected to close on April 8, 2015.

The preferred units will pay monthly distributions at a rate of 8% per annum, while the senior notes will pay interest at 9.25% per annum, due on May 2020. “Help does not come cheap,” said a note from Wunderlich Securities in reference to the interest and distribution payouts.

Breitburn expects to use the proceeds to repay borrowings under its credit facility, which currently has $1.24 billion drawn. The company’s borrowing base was reduced to $1.8 billion from $2.5 billion as part of its redetermination, which is leading to several companies locking in long-term debt and issuing equity to address their respective balance sheets. Today, Whiting Petroleum (ticker: WLL) closed on a series of debt and equity raises that generated proceeds of $3 billion.

United States and Canadian E&Ps have raised more than $349 billion in capital from initial public offerings, secondary equity offerings and debt in the last five years alone. Investment firms like EIG have been very active on the market, including the Carlyle Group, which raised $2.5 billion for its international energy fund earlier this month. Marcel van Poecke, leader of Carlyle’s international team, called the situation “one of the best energy investing environments… in more than 30 years.”

Cash Flow Crunch

A note from Raymond James Equity Research called Breitburn’s actions “the necessary steps to improve its balance sheet and financial liquidity.” BBEP will have roughly $560 million in liquidity upon completion of the offerings. The company’s debt to market cap percentage has climbed to 264% in the wake of the oil price swoon. Its net debt to EBITDA ratio is 7.5x, which is well above the 3.9x average of its 11 MLP E&P peers in EnerCom’s latest MLP Weekly. Wunderlich mentioned the company’s “liquids-heavy portfolio would keep the stock under pressure until oil stages a convincing recovery.” BBEP was listed as 63% oil-weighted in the EnerCom report.

Management also elected to cut its distribution to $0.50 per unit – half of its previous distribution of $1.00 per unit. The move will save the company roughly $104 million in fiscal 2015 and chip away at its debt levels, which are expected to fall to $2.8 billion by year-end (down from $3.2 billion). Hal Washburn, Chief Executive Officer of Breitburn, acknowledged the distribution cuts were “very difficult” but believed it will generate the best returns on a medium to long-term view. “(This) will substantially increase our distribution coverage and better position us for long-term value creation, as we believe we can reinvest this additional liquidity at higher rates of return in the current environment,” he said, adding that the company will actively pursue “strategic acquisitions.”

Raymond James said the steps have eliminated a “potential liquidity crisis” and credited the company with maintaining its distribution in a difficult environment. “While we previously saw a scenario where the company might have to completely eliminate the distribution in 2015, at this point those fears have been removed,” the note said.

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