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What: Units of VTTI Energy Partners (NYSE: VTTI) slumped on Tuesday, and were down 10% at 3 p.m. EDT.
So what: A trio of announcements after the closing bell yesterday are driving today's sell-off. First, VTTI Energy reported its second-quarter results. Overall, the results were a little light, with net income slipping from $20.3 million in the year-ago quarter to $17.2 million in the second quarter of this year. Meanwhile, distributable cash flow also slipped, falling from $14.3 million to $12.3 million mainly due to a near-doubling of interest expenses. Because of that, the company's distribution coverage ratio was a slightly concerning 0.95 during the quarter, meaning it paid out more than it earned.
In addition to earnings, the company announced that it was acquiring an additional 8.4% equity interest in VTTI MLP and associated pro-rata net debt from VTTI MLP Partners for $96.3 million in cash. In doing so, the company would boost its stake in VTTI Operating (which is the entity that owns its terminal facilities) to 51%. The company expects this transaction to be accretive to distributable cash flow and allow it to continue boosting its distribution, which it recently increased by 3.1%.
Finally, to fund this transaction, VTTI commenced a public offering of 5.25 million units. That offering is expected to generate $101.3 million in gross proceeds, which will be used to fund the recently announced transactions.
Now what: Investors are never thrilled with dilution, even if the equity funds an accretive transaction. However, given that interest expenses are weighing on cash flow right now, an equity offering to acquire cash-flowing assets is not a bad idea.
