Leading pipeline operator and asphalt refiner
NuStar Energy L.P.
) announced its decision to sell off its 50% interest in the
asphalt operations, in an attempt to raise fund to pay down debt.
In this regard, NuStar entered into a Purchase and Sale Agreement
with the privately held investment firm Lindsay Goldberg LLC.
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Per the terms, a subsidiary of Lindsay Goldberg will pay $175
million for the stakes of the asphalt refining assets. Both
companies have also agreed to form a joint venture, with 50% voting
interest for each, to conduct the operations of the asphalt
The transaction, which is expected to be closed before September
30, includes NuStar's two asphalt refineries - one in Paulsboro,
New Jersey and the other in Savannah, Georgia - with a combined
daily capacity of 104,000 barrels plus the associated inventory.
San Antonio-based NuStar will likely obtain cash proceeds of $400
million to $500 million from the agreement, depending on the
working capital requirements of the joint venture. NuStar will get
the payment for the inventories transferred, when the deal gets
closed, and will be financed through a credit facility.
Taking in the effects of this disposition, NuStar expects to
witness lower earnings before interest, taxes, depreciation and
amortization (EBITDA) in the second quarter compared with the
prior-year quarter result of $160 million.
NuStar also apprehends that its fuels marketing business will incur
a loss for the quarter, hurt by effects of the deteriorating
commodity price market. Combined with the weak results of the
company's asphalt segment, the overall second quarter earnings will
likely be lower.
However, for the latter part of 2012, NuStar's performance will be
supported by the completion of two pipeline projects in the Eagle
Ford Shale. Further growth opportunities in both the storage and
transportation segments are expected to pull up NuStar's EBITDA in
NuStar - which competes in the Oil and Gas Production Pipeline
industry with firms like
Tesoro Logistics L.P.
Enbridge Energy Management LLC
) - engages in the transportation and storage of crude oil as well
as refined products in the U.S., the Netherlands Antilles, Canada,
Mexico and the U.K.
We believe that this divesture will allow NuStar to spread out the
losses associated with the asphalt business units, primarily due to
declining demand and steeper expenses. Additionally, the cash
proceeds from the transaction can be utilized for the development
of high-quality, high-return pipeline and terminal assets, apart
from debt payout.
We are maintaining our long-term Neutral recommendation on