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Why Units of EnLink Midstream Are Soaring Today

By Matthew DiLallo – Oct 22, 2020 at 4:10PM

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This master limited partnership (MLP) continues to make progress on its financial improvement plan.

What happened

Units of EnLink Midstream (ENLC -1.56%) jumped as much as 10.6% by 3:15 p.m. EDT on Thursday. Fueling the MLP's rally was an update on its finances. 

So what

EnLink Midstream secured a three-year, $250 million accounts receivable financing facility with PNC Bank. It will have an initial base of $225 million, which will vary based on the value of its accounts receivable balance. The MLP intends to use those proceeds to repay the outstanding borrowings on its $1.75 billion revolving credit facility, which stood at $75 million at the end of September. 

A twist of pipelines with a bright sun shining through.

Image source: Getty Images.

When combined with the company's free cash flow, that additional borrowing capacity gives it even more flexibility to repay its $850 million term loan when it matures at the end of next year. That's helping further ease the market's concern about its financial situation. 

Meanwhile, the MLP also reported that it generated significant free cash flow during the third quarter despite the continued turbulence in the energy market. As a result, it reduced its net debt by about $145 million during the quarter. 

Now what

EnLink took several actions earlier this year to bolster its balance sheet and free cash flow amid the challenging conditions in the oil market, including cutting capital spending and its distribution. These moves are paying off as its business is generating lots of free cash, which is giving it the funds to pay down debt. Meanwhile, its improving financial profile is opening the door to low-cost financing options like this new financing facility. That's helping put the company's reset distribution -- which yields an attractive 12.8% even after today's rally -- on an even firmer long-term foundation.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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