What: Units of NGL Energy Partners (NYSE:NGL) surged 34% by 11:15 a.m. ET on Friday. Fueling the big move higher was a strategic update by the company, which included the announcement of a new strategic relationship with Oaktree Capital (NYSE: OAK).
So what: NGL Energy Partners revealed several strategic moves today. Topping that list was a $200 million private placement of 10.75% convertible preferred units and the formation of the strategic relationship with funds managed by Oaktree Capital. NGL Energy Partners initially plans to use those proceeds to repay borrowings under its credit facility, however, it may re-borrow that cash in the future to fund capital expenditures. Meanwhile, the strategic relationship with Oaktree Capital will enable the companies to jointly pursue future opportunities to grow NGL Energy Partners' asset base, with Oaktree assisting with financing.
In addition to that, NGL Energy Partners announced the temporary reduction of its distribution to $0.39 per unit on a quarterly basis, which is 39% lower than the previous rate. That reduction will provide the company with $170 million of annual cash flow savings, which will enhance its liquidity and enable the company to further reduce debt or invest in new growth projects in the future.
Finally, the company provided an update on its guidance. NGL Energy Partners now expects its full-year fiscal 2016 adjusted EBITDA to be in a range of $420 million to $430 million, which is a slightly lower than the $450 million guidance it provided last quarter. That said, it sees fiscal 2017 adjusted EBITDA increasing to $500 million. Furthermore, it expects to be able to resume distribution growth in fiscal 2018.
Now what: NGL Energy Partners has been hard at work over the past few months fixing its balance sheet after its underlying businesses started to feel the impact from the energy market downturn. The strategic actions it is announcing today should do just that, with the company receiving a big cash infusion to further reduce its outstanding debt, while also cutting its cash outflows for the next couple of years to boost its liquidity. It's now in a much stronger financial position to weather the downturn.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Oaktree Capital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.