Wed 12/16/2020 17:59 PM
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An ad hoc group of holders of the bonds of NGL Energy Partners LP, a Tulsa, Okla.-based master limited partnership whose midstream subsidiaries include Grand Mesa Pipeline, is working with Jones Day as legal advisor and Perella Weinberg as financial advisor. Continue reading for our Americas Core Credit team's analysis of the NGL Energy credit facility extension and request a trial for access to the linked documents as well as our analysis and reporting on hundreds of other stressed, distressed and performing credits.

NGL is working with Intrepid Financial Partners as financial advisor, the sources added.

On its second-quarter earnings call, CFO Robert Karlovitch said that the company is seeking to extend its credit facility due October 2021 by a year, while acknowledging that “borrowing costs may be going up.”

Karlovich said that NGL was also seeking ways to reduce the commitments under the facility and address “certain financial covenants” on account of the impact of the Covid-19 pandemic and the bankruptcy filing of Extraction Oil. Extraction rejected transportation services agreements, or TSAs, with Grand Mesa Pipeline as part of its filing.

“We are working diligently to complete this extension as soon as possible,” Karlovich said. “Our current leverage ratio is about 5.3x calculated in accordance with our credit facility in line with prior quarter, and we are working on opportunities ... to reduce our secured debt and lower our leverage.”

“There'll be limits on cash flows leaving the company, other than to reduce indebtedness,” Karlovich said. He said that conversations with its bank group have been “constructive.”

NGL also announced an “adjustment” in its quarterly distribution to 10 cents per unit for the second quarter, half the first quarter’s 20 cents per unit level. In an Oct. 27 news release, CEO Mike Krimbill stated that the adjustment “should benefit” discussions with the bank group.

“We were also yielding over 20% on our common units, and we believe the best use of our cash at this time is to reduce indebtedness, improve leverage and reduce bank commitments in the short term,” Krimbill said.

An illustrative capital structure is shown below:
NGL Energy Capital structure

Karlovich stated that debt reduction will be the company’s focus going into fiscal year 2021. He noted that since July 1, NGL has reduced its net debt by $50 million through repurchases.

In NGL’s second quarter, ended Sept. 30, the company reported revenue of $1.17 billion, up from $844.4 million in the prior quarter. The company reported adjusted EBITDA from continuing operations of $138 million, up from $90.7 million in the first quarter, which can be attributed to the sale of crude oil stored for contango, as well as the sale of skim oil barrels held during NGL’s first fiscal quarter and reduced operating expenses in the water solutions segment. The company’s second-quarter earnings release added that the reduced operating expenses represent approximately $50 million to $60 million in annual cost savings.

The company generated $63.2 million from operating activities in the quarter, compared with $80.4 million in the prior quarter. The decrease in cash provided by operating activities was primarily due to a $32 million decrease in working capital changes. The company spent $34.5 million on capital expenditures during the quarter, compared with spending $97.8 million in the prior quarter, resulting in $28.7 million of free cash flow, compared with negative $17.4 million in the prior quarter.

Karlovich also said on the call that “physical volumes” on the Grand Mesa Pipeline “have not changed significantly recently,” and he declined to address whether Extraction was still shipping on the pipeline.

In the Extraction cases, Judge Christopher Sontchi on Nov. 2 authorized the debtors to reject its TSAs with Grand Mesa and Platte River, another midstream operator. In the closely followed decision, Judge Sontchi applied the deferential business judgment standard instead of a heightened public interest standard, as requested by the midstream counterparties. Grand Mesa and the Federal Energy Regulatory Commission on Dec. 11 filed a joint motion seeking to directly appeal Judge Sontchi’s ruling to the Third Circuit Court of Appeals.

NGL, Jones Day and Intrepid did not respond to requests for comment. Perella Weinberg declined to comment.

--Millie Dent, James Holloway
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