Rentech Nitrogen Partners, L.P. (RNF)

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Rentech Nitrogen Partners, L.P. (RNF)

Q3 2012 Earnings Conference Call

November 8, 2012 12:00 ET

Executives

Julie Cafarella - VP, IR & Communications

Hunt Ramsbottom - CEO

Dan Cohrs - CFO

Analysts

Brent Rystrom - Feltl

Ted Drangula - Morgan Stanley

Derek Fernandes - Brean Capital

Justin Orlando - Dolphin Limited Partnership

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Rentech Nitrogen Third Quarter 2012 Earnings Call. During today's presentation, all participants will be in a listen-only mode. And afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, November 8, 2012.

And I would now like to turn the conference over to Ms. Julie Cafarella, Vice President of Investor Relations and Communications. Please go ahead, ma'am.

Julie Cafarella

Thank you. Welcome to Rentech Nitrogen’s conference call for the third quarter ended September 30, 2012. During this call, Hunt Ramsbottom, CEO of Rentech Nitrogen will summarize the partnership's activities during the quarter. Dan Cohrs, our Chief Financial Officer will give a financial review of the period and provide comments on Rentech Nitrogen’s financial position. We will then open the lines for questions. We ask that you limit yourself to one question, so that we may get to as many of your questions as possible.

Please be advised that certain information discussed on this conference call will contain forward-looking statements. They can be identified by the use of terminology such as may, will, expect, believe, and other comparable terms. You are cautioned that while forward-looking statements reflect our good faith, belief, and best judgment based upon current information, they are not guarantees of future performance, and are subject to known and unknown risks and uncertainties and risk factors detailed from time-to-time in the partnership periodic reports and registration statements filed with the Securities and Exchange Commission. The forward-looking statements in this call are made as of November 8, 2012. And Rentech Nitrogen does not undertake to revise or update these forward-looking statements, except to the extent that it is required to do so under applicable law.

In addition, today’s presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliations to the most directly comparable GAAP financial measures are included in our 2012 third quarter earnings press release that is available on our website.

Now, I would like to turn the call over to Hunt Ramsbottom, CEO of Rentech Nitrogen.

Hunt Ramsbottom

Good morning everyone, and thank you for joining us today. I am pleased to say, we reported solid third quarter results and just last week closed our acquisition of Agrifos, the leading producer of synthetic granulated ammonium sulfate fertilizer in North America. The production facility is located in Pasadena, Texas. The acquisition is expected to be accretive to cash distributions. Beginning in 2013, it provides the number of diversification benefits and growth opportunities.

I'll first summarize the acquisition for those of you who did not join our conference call last week and then I will review our results for the third quarter. The Pasadena facility is the largest producer of synthetic granulated ammonium sulfate fertilizer or AS in North America. Synthetic granulated AS is a higher quality product and commands a price premium compared to other main forms of AS, which is a byproduct of the capital (indiscernible) process.

AS sales currently account for approximately 82% of the plant's revenues. The plant’s other products include ammonium thiosulfate fertilizer, or ATS, and sulfuric acid, or SA. The plant uses ammonia and sulfur as its raw materials to produce these products. Product margins are relatively stable and the majority of the products are sold within the U.S. and Brazil. The plant is strategically located on the Houston ship channel with access to vessels, barge, rail, and highways. In conjunction with the closing the acquisition, we amended our existing debt facility and expanding our borrowing base from $135 million to $300 million.

The initial purchase price of the acquisition was $158 million and represents a multiple of 6.3 times 2013 forecasted EBITDA for the plant before one-time transition and integration costs. A $138 million of the initial purchase price was provided in cash through the amended credit facility. The remainder of the purchase price was provided in the form of 538,000, 793 common units of Rentech Nitrogen valued at approximately $20 million. Some of these units are held in escrow and the remaining units have a six-month lockup period.

Capacity in the facility provides an excellent ammonia hedge for our East Dubuque facility. As ammonia upgrading operation, the Pasadena plant buys approximately the same amount of ammonia with our East Dubuque operation sells. The plant buys ammonia at lower Tampa-based prices while our East Dubuque facility sells ammonia at higher Corn Belt prices, allowing the consolidated business to capture the basis premium between Tampa and Corn Belt pricing and reduced the overall exposure to the variability of ammonia prices.

The acquisition should increase the stability of our margins. Prices and product margins for ammonium sulfate generally have lower volatilities and those are the principal products at East Dubuque. AS prices have historically correlated with the prices of its raw materials, ammonia and sulfur. The acquisition diversifies our crop from customer concentration. The East Dubuque plant sells products that are applied mostly to corn, but ammonium sulfate to be applied to multiple crops such as soybeans, potatoes, cotton, alfalfa and wheat as well as corn. The acquisition also expands our customer base from being concentrated on Mid Corn Belt to other regions in the United States and into South America.

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