What: Units of NGL Energy Partners (NGL 1.66%) rocketed higher on Friday morning and were up by more than 35% at 10:45 a.m. EST. Fueling the surge was an agreement to sell the general partner of TransMontaigne Partners (TLP) to a private equity fund for $350 million in cash.
So what: In selling the general partner of TransMontaigne Partners, NGL Energy Partners picks up some much needed cash. It will use that cash to repay some of the borrowings on its revolving credit facility, which will provide it with the liquidity it needs to fund its growth capital expenditures for the next 18 months. That will eliminate the need to access the debt or equity capital markets to fund its growth. It can further enhance its financial position by selling the 3.2 million units of TransMontaigne Partners that it still owns, with it granting the buyer an option to purchase up to 800,000 of these units at a future date.
Another key aspect of this deal is the combination of cost reductions and revenue enhancements resulting from a new partnership agreement with the buyer. When added together, NGL Energy Partners will see a $12 million annual net increase to its EBITDA going forward. This incremental cash flow, when combined with the cash infusion, will enable NGL Energy Partners to maintain its current annual distribution rate of $2.56 per common unit.
Now what: NGL Energy Partners was able to plug a big hole with this one deal, which is why its units are skyrocketing. By erasing any concerns that its distribution would need to be cut, investors can rest easy knowing that their income stream is safe.