April 20, 2021 - 3:05pm EST by
2021 2022
Price: 8.83 EPS 0 0
Shares Out. (in M): 71 P/E 0 0
Market Cap (in $M): 630 P/FCF 0 0
Net Debt (in $M): 2,500 EBIT 0 0
TEV ($): 4,900 TEV/EBIT 0 0

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In a low interest rate environment Crestwood Equity Partners LP  9.25% Preferred Units offer a rare combination of high yield (9.6%) and solid distribution coverage  (approximately 7X).


The Units


Par Value  $9.13

Distribution    $0.844 paid quarterly

Current yield:  9.6%

Distributions are Cumulative.

Distributions are K-1 income



The Company  


Crestwood is a limited partnership engaged in the transportation, storage, processing, and sale of natural gas, oil and produced water.  Approximately 70% of EBITDA comes from gathering and processing. The remainder comes from storage and marketing.  Crestwood’s provides gathering and processing services in North Dakota, Wyoming, Texas , West Virginia and New Mexico. Production primarily comes from shale and tight gas plays in the Bakken, the Powder River Basin, Barnett, and the Marcellus.


Crestwood faced numerous challenges in the past year.  In addition to the unprecedented volatility in the energy markets and resulting shut-ins, Chesapeake Energy, Crestwood’s primary customer in the Powder River Basin, filed for bankruptcy protection.  Crestwood’s contracts with Chesapeake were modified slightly in the bankruptcy, and since emergence, Chesapeake has resumed operations in the PRB. 


Crestwood’s operations are also exposed to the Biden administration’s decision to halt leasing on government land, and the ongoing environmental challenges to the Dakota Access Pipeline.  According to the company, the ban on leases will not effect existing leases or leases on tribal land, and less than 40% of its acreage is on federal land. The battle over the Dakota Access Pipeline has had some short term benefit to CEQP, by making its COLT transportation hub with its access to multiple pipelines and a crude by rail loading facility an attractive hedge for producers concerned about the potential closing of the DAPL.


Capital Structure 


Crestwood has approximately $2.5 Billion of debt ahead of the preferreds.  Senior Debt maturities are staggered with $500 million due in 2025, $600 million due in 2027, and $700 million due in 2029. Crestwood also has a $1.25 billion revolving credit facility available through October 2023 of which $720 million was outstanding at the end of 2020.


There are 62.8 million common units with a market cap of $1.7 billion behind the preferreds. 


Recent Developments 


In January, Crestwood issued $700 million of 6% Senior Notes due in 2029.  The proceeds were used to refinance 6.25% debt due in 2023.  


 In March, Crestwood repurchased for $268 million 11.5 million common units and its general partnership interest from First Energy, its sponsor.  First Energy also sold its remaining 6 million common units via a private placement.  As a result, CEQP will transition to an independent public entity. At the same time, Crestwood announced a $175 buyback program, which may be used to purchase either the common or preferred units through the end of 2022.


Distribution Coverage 


Crestwood expects to have adjusted EBITDA in 2021 of between $575 and $625 million compared to $580 million in 2020.  Distributable cash flow before the $61 million CEQP Preferred dividend is estimated at $420 million at the midpoint of management’s estimate.  Even after allowing for the $157 million of common unit dividends, Crestwood expects to have $130 to $180 million of free cash flow.  (This does include the $286 million used to in the First Reserve transaction.)




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


While I would expect Crestwood to initially use free cash flow to reduce some of the revolver debt incurred in the First Reserve transaction, the announcement of a $175 million buyback program suggests that the company is considering additional repurchases.  Crestwood’s Senior Debt is currently trading above par, with yields in the mid-5s.  Crestwood’s common units are yielding around 9%, slightly less than the preferreds, which are higher in the capital structure.

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