What happened
Units of Crestwood Equity Partners (CEQP) rallied as much as 17% by 11 a.m. EDT on Tuesday. Fueling the MLP's rise was its strong first-quarter showing and outlook for what's ahead.
So what
Crestwood generated $151.4 billion of adjusted EBITDA during the first quarter, which was a 31% increase. Distributable cash flow, meanwhile, surged 38% to $91 million. That was enough money to cover the company's dividend -- which yields an eye-popping 21.5% even after today's rally -- by 2.1 times. Meanwhile, it ended the quarter with a leverage ratio of four times debt-to-EBITDA.
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Crestwood, however, warned that the turbulence in the oil market would have some effect on its 2020 forecast because lower commodity prices will impact the volumes produced by its customers. In the company's estimation, it should generate between $520 million and $570 million of adjusted EBITDA this year. While that's below its prior guidance range of $590 million to $620 million, it's about 3% higher than last year's total at the midpoint. Distributable cash flow should be between $290 million and $340 million, which is below its initial view of $350 million to $380 million.
Those numbers would have been even lower if not for the recently completed acquisition of some natural gas liquids terminals from Plains All American Pipelines (PAA -0.44%). Crestwood paid $160 million to Plains All American for the assets, which it expects will generate between $35 million and $40 million of cash flow over the next 12 months. The company used its available borrowing capacity to finance this deal, which will cause its leverage ratio to rise between 4.25 and 4.75 times this year, quite a bit above its 3.5 times target.
Now what
Crestwood believes it has the financial flexibility to absorb the near-term impact the oil market downturn will have on its earnings. Because of that, it plans to maintain its distribution for now. However, if conditions worsen, the company could reduce its payout and use that cash to pay down debt or repurchase some of its beaten-down units.
