What happened
American Midstream Partners LP (AMID +0.00%) continued its sell-off on Monday, falling another 10% by 2:45 p.m. EDT after a merger partner terminated their agreement. That news comes on the heels of Friday's fallout, when the master limited partnership (MLP) tumbled 42% after slashing its distribution to investors by 75%.
So what
American Midstream Partners announced a revised capital allocation strategy on Friday to reduce debt, internally fund some growth projects, and create long-term value. As part of that strategy change, the company slashed its distribution by 75% and said that it would pursue several noncore asset sales.
Overall, the company identified $350 million to $400 million of noncore assets that it could sell. Add those proceeds to the $65 million per year it would save from slashing the distribution, and American Midstream believes it can get its leverage ratio near 4.0 by the middle of next year, which would make it easier for the company to finance expansion projects.
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This announcement, however, led Southcross Holdings to terminate its proposed transaction with American Midstream. Under that deal, Southcross would have sold assets to American Midstream, as well as merged its MLP with the company. Instead, Southcross sees American Midstream's announcement to slash its distribution and sell assets as a failure to obtain funding for the deal, which enabled it to terminate the merger and trigger a $17 million termination fee payable by American Midstream to Southcross.
Now what
American Midstream initially saw the deal with Southcross as an accelerant to transform it into a larger-scale MLP. Instead, the company now needs to downsize and reshape its balance sheet, so that it can grow into the larger-scale company that it envisions. That will take quite some time, which is why investors might want to consider buying one of these top-tier energy stocks instead.
