Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. NuStar GP Holdings, LLC (1223786) 10-Q published on May 08, 2018 at 4:07 pm
Reporting Period: Mar 30, 2018
NuStar Energy expects that its board of directors’ distribution reset announced in April, along with the simplification, which it hopes to close during the first half of the year, will, together, strengthen its balance sheet in 2018 and beyond. NuStar Energy believes that the combination of the Merger, the elimination of the IDRs and the distribution reset will, in the near-term, establish a more efficient, transparent structure and improve both its distribution coverage and its ability to fund its cash requirements. In the longer-term, NuStar Energy expects to be able to fund a larger proportion of its capital projects with the cash generated by its operations, which should, over time, reduce its need to access capital markets to finance future growth opportunities and improve its leverage metrics.
Overall, NuStar Energy expects higher revenue in its pipeline segment in 2018, compared to 2017, driven by incremental revenue from new contracts, an acquisition, and growth in its Permian Crude System. NuStar Energy recently announced several long-term contracts with minimum volume commitments with strong, creditworthy customers to support a series of healthy-return capital projects to connect to third-party rail facilities in Corpus Christi, expand certain South Texas products pipeline systems and expand its terminal in Nuevo Laredo. NuStar Energy expects to benefit from incremental revenue from these projects, starting as soon as late 2018. In April, NuStar Energy acquired a small pipeline system that connects to its Central East System, which NuStar Energy expects to benefit its pipeline segment starting in second quarter of 2018. NuStar Energy projects that the Permian Crude System will continue to grow, and expects the Permian Crude System’s positive contributions to its pipeline segment’s overall results to grow accordingly. Partially offsetting these positive factors, NuStar Energy expects its South Texas Crude System to generate lower revenue in 2018, as compared to 2017, due to lower rates from the expiration of some current committed shippers’ contracts in the second half of 2018.
NuStar Energy currently expects storage segment revenue in 2018 to be lower than 2017, due to lower rates at certain facilities with contract renewals occurring over the course of this year. NuStar Energy agrees with the many energy experts who currently predict that backwardation, which tends to decrease demand for storage capacity in certain regional markets, will continue through 2018, and its forecast reflects lower revenues for affected facilities with contracts expiring during 2018, as compared to 2017. However, NuStar Energy believes it is insulated to some extent by its long-term contracts at facilities where backwardation is a driving factor, as well as the fact that many of its storage assets are located in markets in which forward pricing has little impact on rates or renewals. NuStar Energy saw an uptick in PDVSA’s activity at its St. Eustatius terminal, which increased the facility’s revenues for the year-to-date above its previous expectations, and its current forecast reflects the improvement NuStar Energy has seen thus far this year. Since PDVSA’s ability to perform in the future remains subject to significant uncertainty and risk, NuStar Energy continues to monitor the situation, work on replacement customer(s) and take other protective measures.
On April 26, 2018, NuStar Energy announced that the board of directors of NuStar GP, LLC reset its quarterly distribution per common unit to $0.60 ($2.40 on an annualized basis), starting with the first quarter distribution payable on May 14, 2018. As a result of the reduction in NuStar Energy’s quarterly distribution to its common limited partners to $0.60, we are not entitled to receive incentive distributions from NuStar Energy pursuant to its Partnership Agreement. On April 26, 2018, we announced a quarterly distribution of $0.33 per unit, which we expect to fund with the quarterly cash distributions we receive from NuStar Energy, as well as with borrowings under our revolving credit facility. We reduced our quarterly distribution to our unitholders from $0.545 per unit to $0.33 per unit as a result of the reduction in distributions we will receive from NuStar Energy and to reflect the amount a unitholder of ours would expect to receive had the Merger discussed in Note 2 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” been completed. If the Merger is not completed, we do not expect to maintain distributions at this level based on the quarterly distributions that we expect to receive from NuStar Energy.
Our revolving credit facility dated June 28, 2013 currently has a borrowing capacity of up to $60.0 million, of which up to $10.0 million may be available for letters of credit. We amended this facility on April 9, 2018 to extend the maturity date to the earlier of August 8, 2018 or the effective date of the Merger discussed in Note 2 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements.” This amendment also decreased the minimum cash distributions we are required to receive from NuStar Energy each fiscal quarter from $19.0 million to $7.0 million in respect of our ownership interests in NuStar Energy. In connection with the amendment, Riverwalk Holdings, LLC (Riverwalk) increased the number of NuStar Energy common units that Riverwalk has pledged to secure its guarantee to 6,926,833. As of March 31, 2018, we had outstanding borrowings of $43.0 million and availability of $17.0 million for borrowings under our revolving credit facility. Interest on our revolving credit facility is based upon, at our option, either an alternative base rate or a LIBOR-based rate. As of March 31, 2018, the weighted-average interest rate was 3.9%. Our management believes that we are in compliance with the covenants of our revolving credit facility as of March 31, 2018. Please refer to Note 8 of the Condensed Notes to Consolidated Financial Statements in Item 1. “Financial Statements” for additional discussion on our revolving credit facility.