Lets do a bit more financial analysis of NGL
Assumptions -
Annual EBITDA is $650m, and probably growing. Lets says EBITDA is about the same as cash flows.
Annual Cap Ex is about $120m, and likely to grow if paying more for Cap Ex delivers EBITDA growth.
Balance sheet
2025 debt is about $281m
2026 debt is about $2.37m
NGL has a $600m bank line of credit, which currently has $50m drawn.
Preferred stock is about $900m, with a floating rate (now around 12%)
Preferred stock dividends are suspended, and unpaid dividends are now about $320m.
In sum, NGL needs to come up with $281m + $2.37b to roll forward it's long term debt, and $1.22b to completely repurchase it's preferred stock obligations. Total = $3.9 billion would do it.
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The latest press releases indicate NGL is going to issue a new $700m 2031 term loan in conjuntion with $2.1b of fresh 2031 long term debt. That $2.8b cash will be used to repurchase the 2025 and 2026 debt, leaving $100m cash after expenses.
Lets say the coupon on this $2.8 billion new debt is 7.5%. NGL's 2026 7.5% debt trades above par, so the coupon on fresh senior secured debt may actually be lower than 7.5%
In Q1 2024 NGL will probably generate $100m free cash as it's the high cash flow quarter of the fiscal year, so the can pay down the $50m line of credit owed, and about $150m cash on hand.
NGL could then theoretically in Q2 2024 issue $1 billion junk debt of some sort, give it a 10% coupon (probably lower), and use the $150 cash, this $1 billion, and the use $70m of the untapped $600m revolver ($1b + $150m + $70m = $1.33b) to pay the $320m arrearage and repurchase ALL the $900m preferred stock.
At that point NGL will have annual EBITDA of $650m (and growing), and the following annual expenses:
$2.8b long term secured senior debt at 7.5% = $210m interest
$1 billion junk debt at 10% = $100m interest expense
$80m line of credit at 10% = $8m interest expense (and $520m line of credit available for "working capital" needs).
Total interest expense = $318m.
It's very manageable. $650m EBITDA - $318m interest expense = $338m cash available for Cap Ex (growth and maintenance), further debt reduction and distributions. NGL can spend up to $162m Cap Ex, and still have $150m ($1.15 per share) available for distributions.
Then, if $650m EBITDA grows (as expected), NGL can pay for growth Cap Ex, pay a healthy distribution, and grow EBITDA to levels where the $1 billion 10% junk debt can eventually be refinanced into regular long term debt. |
