IPO Report: QEP Midstream Partners, LP (QEPM)

Francis Gaskins |

Nine other IPOs were scheduled for the week of August 5. The full IPO calendar can be found at IPOpremium.

QEP Midstream Partners, LP ($QEPM)  is based in Denver, Colorado.  QEPM scheduled an $65 million IPO with a market capitalization of $412 million at a price range mid-point of $20 for Friday, August 9, 2013.

QEPM'sS-1 was filed August 1, 2013.  The manager and joint managers are Joint Managers: Wells Fargo; Morgan; Citigroup; Deutsche; J.P. Morgan/ Goldman.  The co-managers are BMO Capital; SunTrust Robinson; BB&T Capital; Mitsubishi UFJ; Piper Jaffray; CIBC; TD Securities

Summary

QEPM provides mid-stream pipelines in Wyoming and Utah. QEPM's sponsor/owner is QEP which has a market cap of $5.4 billion, a strong, invested partner.

Valuation

QEPM's minimum expected cash distribution is 5% at the price range mid-point of $20. There is excess estimated cash coverage of $10.9 million over the estimated minimum distribution of $54.5 million for the 12 months ending January, 2014.

Valuation Ratios

 

Mrkt

Price /

Price /

Est Yield

% offered

   

Cap (mm)

BkVlu

TanBV

 

in IPO

QEP Midstream Partners, LP (QEPM)

$1,100

2.1

2.3

5%

36%

     

12 months ended

   
     

Dec '12

March '13

Jan '14

 

Est cash available for distribution

 

$70.8

$68.2

$65.4

 

Minimum cash distribution

   

$54.5

$54.5

$54.5

 

Over

   

$16.3

$13.7

$10.9

 

% excess of minimum

   

30%

25%

20%

 

Glossary:

Conclusion

The average yield on the S&P 500 is less than 2%. The 5% yield offered by QEPM, with a strong, invested partner is attractive particularly to QEP shareholders, who receive a .26% yield. QEPM is a buy on the IPO.

Business

QEPM is a limited partnership recently formed by QEP Resources, Inc. (QEP) to own, operate, acquire and develop midstream energy assets.

Primary assets consist of ownership interests in four gathering systems and two FERC-regulated pipelines through which QEPM provides natural gas and crude oil gathering and transportation services.

Assets are located in, or are within close proximity to, the Green River Basin located in Wyoming and Colorado, the Uinta Basin located in eastern Utah, and the portion of the Williston Basin located in North Dakota, which are currently among the most economic and active drilling regions in the United States.

Organization chart
http://gaskinsco.com/qepm-org.png

Incentive distribution rights

• first, 98.0% to all unitholders, pro rata, and 2.0% to the general partner, until each unitholder receives an amount equal to 115.0% of the reset minimum quarterly distribution for that quarter;

• second, 85.0% to all unitholders, pro rata, and 15.0% to the general partner, until each unitholder receives an amount per unit equal to 125.0% of the reset minimum quarterly distribution for the quarter;

• third, 75.0% to all unitholders, pro rata, and 25.0% to the general partner, until each unitholder receives an amount per unit equal to 150.0% of the reset minimum quarterly distribution for the quarter; and

• thereafter, 50.0% to all unitholders, pro rata, and 50.0% to the general partner.

Minimum Distribution

Minimum quarterly distribution is $1.00, 5% yield at the price range mid-point of $20.

Use of proceeds

QEPM expects to receive $373 million from the sale of 20,000,000 common units

  • make a cash distribution to QEP of $253.5 million, a portion of which will be used to reimburse QEP for certain capital expenditures it incurred with respect to assets contributed to QEPM;
  • contribute $114.0 million to QEP Operating, which will use those funds to repay all $114.0 million of its outstanding debt;
  • pay revolving credit facility origination fees of $3.5 million; and
  • pay Wells Fargo Securities, LLC a structuring fee of $2.0 million.

As of March 31, 2013, QEP Operating, the wholly owned subsidiary, had $114.0 million of debt outstanding, comprised of intercompany loans from QEP that bear interest at 6.05% and are due March 31, 2014 and 2017, respectively. QEP Operating assumed this intercompany debt in connection with this offering.

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

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