What happened

Units of NGL Energy Partners (NGL -0.50%) surged 111% in February, according to data provided by S&P Global Market Intelligence. Fueling the master limited partnership (MLP) was its strong fiscal third-quarter results and improving balance sheet. 

So what

NGL generated $193.3 million of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during its fiscal 2023 third quarter. That was a significant improvement from $147.7 million in the year-ago period. 

The primary driver was record results from its water solutions segment, which generated $121.7 million of adjusted EBITDA, up 47.1% year over year and 16.2% from the prior quarter. The company handled a record 2.43 million barrels of water per day in the quarter, up 31.9% year over year. Meanwhile, it kept expenses down despite inflationary pressures. 

That strong showing enabled NGL Energy Partners to generate more free cash flow to repay debt. It reduced the outstanding principal on its unsecured notes and equipment financing note by $98.1 million in the quarter.

The company stated in its earnings press release that it expected to repay all its 2023 unsecured notes by the end of this June. At the end of December, it had slightly more than $300 million remaining on its 2023 7.5% senior notes. 

NGL Energy Partners has continued to take steps to improve its balance sheet in recent weeks. The company amended its asset-based lending (ABL) facility in mid-February, permanently increasing the total commitments to $600 million. That gave it additional borrowing capacity to potentially repay its 2023 notes. Because of that, the company announced the redemption of those notes last month. 

The MLP has continued to take steps toward enhancing its financial flexibility in March. It recently agreed to sell its marine assets for $111.65 million. The sale of these assets will further reduce leverage. 

Now what

NGL Energy Partners has been working hard to reduce debt to manage its upcoming 2023 note maturity. Those actions have paid off. The MLP has called to redeem those notes well before their November maturity date. 

But the company isn't out of the woods just yet. Its near-term focus is to get its leverage ratio to a comfortable level.

The company aims to reduce its debt-to-adjusted-EBITDA to 4.75 times. It's making progress on that pursuit by using excess cash to pay off debt. Leverage has fallen from 6.11 times at the end of September to 5.28 times at the end of December.

Hitting that leverage target would allow the MLP to resume paying a distribution. It suspended the payout in early 2021 to focus on improving its financial situation.