IPO Report: Arc Logistics Partners LP (ARCX)

Francis Gaskins |

Arc Logistics Partners LP (ARCX) is a fee-based company principally engaged in the terminalling, storage, throughput and transloading of crude oil and petroleum products.

12 other IPOs scheduled for this week.  The full IPO calendar can be found at IPOpremium.

ARCX scheduled a $120 million IPO on the NYSE, with a market capitalization of $243 million at a price range midpoint of $20 for Wednesday, November 6, 2013.

ARCX’s S-1 was filed with priced ranges Oct. 25, 2013.  The Manager, Joint managers are Citi, Barclays, SunTrust Robinson Humphrey and Wells Fargo Securities.  The Co-Managers are RBC Capital Markets, Baird, Stifel, Global Hunter Securities

ARCX is owned primarily pre-IPO by the private equity firm Lightfoot.  See the organization chart here

Valuation

Compare with others

Mrkt

 

 

 

Price /

Dividend

 

Cap (mm)

 

 

 

BkVlue

Yield

Arc Logistics Partners LP (ARCX)

$243

 

 

 

1.1

7.75%

PAA Natural Gas Storage, L.P. (PNG)

$1,960

 

 

 

1.5

6.31%

Kinder Morgan Energy Partners (KMP)

$35,460

 

 

 

2.1

6.67%

Williams Partners L.P. (WPZ)

$20,660

 

 

 

2.2

7.03%

 

 

 

 

 

 

 

Conclusion

Relative to the majors, ARCX offers a higher yield, but for the 12 months ended June 30 ’13 on a proforma basis ARCX had a cash distribution shortfall.  ARCX doesn’t have an operating company ‘sponsor’.  LP’s with strong operating company sponsors are more ‘in demand’ by institutional investors.

The rating on ARCS is neutral.

Business

ARCX is a fee-based, growth-oriented Delaware limited partnership formed by Lightfoot to own, operate, develop and acquire a diversified portfolio of complementary energy logistics assets.

ARCX is principally engaged in the terminalling, storage, throughput and transloading of crude oil and petroleum products.

ARCX is focused on growing its business through the optimization, organic development and acquisition of terminalling, storage, rail, pipeline and other energy logistics assets that generate stable cash flows.

Cash flows

ARCX’s cash flows are primarily generated by fee-based terminalling, storage, throughput and transloading services that ARCX performs under multi-year contracts. As of June 30, 2013, the weighted average term remaining on its customer contracts was approximately three years, and its top 15 customers by revenue have been customers at its facilities for an average of more than five years.

Sponsor & Manager

ARCX is managed and operated by the board of directors and executive officers of the general partner, Arc Logistics GP LLC, a wholly owned subsidiary of the sponsor, Lightfoot

Lightfoot investors include affiliates of, and funds under management by, GE EFS, Atlas Energy, LP, BlackRock Investment Management, LLC, Magnetar Financial LLC, CorEnergy Infrastructure Trust, Inc. and Triangle Peak Partners Private Equity, LP.

Lightfoot intends to utilize ARCX as a growth vehicle for its energy logistics business to facilitate future organic expansion and acquisitions.

Lightfoot has a significant interest in ARCX through its ownership of a 42.9% limited partner interest, is the general partner and owns all of the incentive distribution rights

Organization chart

No incentive distribution rights

ARCX doesn’t own any of the incentive distribution rights, unlike some energy asset limited partnerships.  Incentive distribution rights give a limited partnership's general partner an increasing share in the incremental distributable cash flow the partnership generates.

Market

The North American crude oil and petroleum product industry is undergoing enormous change. Extensive exploration and production activity in crude oil shale plays in both domestic and Canadian oil fields has boosted North American output of heavy and light sweet crudes.

Within the last decade, the terminalling and storage market has experienced an extended period of strong demand and steady growth, particularly in the areas of production and the refinery markets, such as the Gulf Coast.

Customer and customer collaboration

The types of customers relying on independent terminalling and storage services include:

Major Oil Companies.    Major oil companies that own upstream, midstream and downstream assets to support either their crude oil purchasing or petroleum product distribution.

Refiners.    Oil refiners typically store crude oils inbound to their refineries and outbound heavy and light refined products.

Marketers and Traders.    Marketing and trading customers that tend to store crude oil, petroleum products or chemical products for speculative and wholesale purposes.

Distributors.    Customers that store finished petroleum or chemical products for eventual distribution to the end consumer.

Dividend

Post IPO, ARCX intends to pay $1.55 per unit on an annualized basis, which is a 7.75% return at the price range mid-point of $20.

Distribution policy

Post IPO ARCX intends to pay a minimum quarterly distribution of $0.3875 per unit for each whole quarter, or $1.550 per unit on an annualized basis, which is 7.75% on an annual basis.

5% stockholders:  organization chart

Use of proceeds

ARCX expects to net $107.9 million from its IPO.  Proceeds are allocated as follows:

Purchase the LNG Interest from an affiliate of GE EFS for $73.0 million;

Make a distribution to GCAC of $29.6 million as partial consideration for the contribution of its preferred units in Arc Terminals LP; 

Repay $3.0 million intercompany payables owed to its sponsor; and repay $0.3 million of other debt.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ARCX Arc Logistic Partners LP representing limited part 15.04 0.45 3.08 32,910
PNOW Pure Hospitality Solutions Inc 0.00 0.00 0.00 3,000,466

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