Plains All American Pipeline LP (PAA) decided to issue senior notes in two tranches. The partnership is issuing notes after a gap of more than a year.
The partnership plans to utilize the proceeds of the notes issue to fund a portion of its $1.67 billion acquisition cost of BP Canada Energy Company and the balance to repay debts and for general partnership purposes.
However, if the partnership fails to acquire BP Plc.‘s (BP) unit, it will use the proceeds for general partnership reasons, fund its capital expenditure programs and make strategic future acquisitions.
The long-term debt-to-capital ratio of the partnership at the end of 2011 was 48% compared with 50% at 2010 end. Plains All American Pipeline ended 2011 with long-term debts of $4.1 billion compared with $4.6 billion in the year-ago period. In this context, $0.5 billion, 4.25% senior notes, which is scheduled to mature in September 2012, was treated as short-term debt as of December 31, 2011.
Interest expenses of the partnership at the end of fiscal 2011 increased by 2.0% to $253 million from $248 million in fiscal 2010. Since the partnership is silent about the size of the current issue, we cannot provide a clear indication whether the interest expense of the partnership will exceed 2011 levels but can surely say that the new issue will add to the interest burden of the partnership.
The partnership has from time to time resorted to note selling and issuing of units to meet its financial requirements. Last week, the partnership issued 5.75 million notes at an average price of $80.03 per unit. The partnership intends to utilize the net proceed to fund a portion of BP’s Canada unit acquisition and for general corporate purposes.
In January 2011, the partnership issued $600 million 5.00% senior unsecured notes due in February 1, 2021. The partnership utilized the proceeds to lower its dues under the revolving credit facility, fund acquisitions, retire other long-term debt and invest in PAA Natural Gas Storage, LP.
Plains All American Pipeline currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. The partnership competes with Enterprise Products Partners LP (EPD) and Sunoco Logistics Partners L.P. (SXL)
Houston, Texas based Plains All American Pipeline owns assets strategically located in well-established oil producing regions, catering to major U.S. refinery and distribution markets. Other than organic growth opportunities, the partnership also relies on acquisitions to spur growth.
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