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Based in Overland Park, KS, Tallgrass Energy Partners, LP (NYSE:TEP) scheduled a $287 million IPO with a market capitalization of $891 million at a price range mid-point of $22, for Tuesday, May 14, 2013.

Four other new IPOs are scheduled for this week. The full IPO calendar is here.

  • S-1 filed May 6, 2013

  • Manager, Joint Managers: Barclays; Citigroup; BofA Merrill Lynch; Deutsche Bank Securities

  • Co Managers: Credit Suisse; Morgan Stanley; RBC Capital Markets; Wells Fargo Securities; Baird

SUMMARY

TEP provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States.

TEP is a spin-off of a $3.1 billion acquisition by TheTallgrass Group from Kinder Morgan Energy Partners, L.P. (NYSE: KMP), in November, 2012. The Tallgrass Group is based in Overland Park, KS

Excess cash generated
TEP generated excess cash of $6.1 million over the minimum expected distribution of $47.5 million for proforma 2012. For the 12 months ending June, 2014, TEP expects to generate $9.1 million over the minimum expected distribution of $47.5 million.

TEP's projected yield is 5.2%, lower than some of the comparable mainstream L.P.s, but TEP is priced at a price-to-book discount to comparable mainstream L.P.s.

VALUATION

Valuation Ratios

IPO Mrkt

Price /

Price /

% offered

Cap (MM)

BkValue

TangibleBV

in IPO

Tallgrass Energy Partners, L.P.

$891

1.1

2.3

32%

COMPARATIVE VALUATION RATIOS

Comparative Valuation Ratios

Mrkt

Price /

Price /

Yield

Cap

BookValue

TangibleBV

Tallgrass Energy Partners, L.P.

$891

1.1

2.3

5.2%

El Paso Pipeline Partners, L.P (NYSE:EPB)

$9,380

4.7

4.7

5.8%

Kinder Morgan Energy Partners LP

$32,450

2.9

5.8

6.0%

Williams Partners L.P. (NYSE:WPZ)

$20,460

2.3

3.1

6.6%

Summit Midstream Partners LP (NYSE:SMLP)

$1,360

1.7

2.8

6.1%

SMLP IPO'd September 27, 2012 at $20, now up 37%

Glossary

CONCLUSION
Buy TEP on the IPO. The yield is lower than comparables but there is excess cash and TEP will IPO at a price-to-book discount.

BUSINESS
TEP believes it is a growth-oriented Delaware limited partnership formed by Tallgrass Development to own, operate, acquire and develop midstream energy assets in North America.

TEP currently provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through the Tallgrass Interstate Gas transportation system (TIGT System) and provide processing services for customers in Wyoming through the Casper and Douglas natural gas processing and West Frenchie Draw natural gas treating facilities (Midstream Facilities).

TEP intends to leverage its relationship with Tallgrass Development and utilize the significant experience of the management team to execute a growth strategy of acquiring midstream assets from Tallgrass Development and third parties, increasing utilization of existing assets and expanding systems through organic growth projects.

ORGANIZATION
In November 2012, TEP acquired from Kinder Morgan Energy Partners, L.P. , a portfolio of midstream energy assets having an enterprise value of approximately $3.3 billion (based on the cash purchase price paid and Tallgrass Development's proportionate share of the indebtedness of the acquired entities).

Tallgrass Development will contribute the TIGT System and the Midstream Facilities to TEP in connection with this offering and will continue to own and manage all of the other assets acquired from Kinder Morgan.

Organization chart

GROWTH PLAN
TEP currently is undertaking an expansion of the Casper and Douglas plants to increase their combined capacity by approximately 50 MMcf/d and expects the project to be completed in the second half of 2013.

The Casper and Douglas plants are the only natural gas processing plants that currently provide straddle processing of natural gas flowing into the TIGT System out of the Niobrara shale. In addition, the Casper plant has a natural gas liquid, or NGL, fractionator with a capacity of approximately 2,000 barrels per day as of December 31, 2012.

TEP's Casper NGL fractionator is undergoing an expansion in connection with the Casper and Douglas plant expansion project referred to above, and TEP expects that this expansion, which is anticipated to be completed in the second half of 2013, will increase TEP's NGL fractionator's capacity by approximately 1,500 barrels per day.

NGLs produced by the Casper and Douglas plants are either sold into local markets consisting primarily of retail propane dealers and oil refiners or sold to Phillips 66 Company via its Powder River NGL pipeline.

TEP intends to also grow its business by pursuing accretive acquisitions from Tallgrass Development and third parties. TEP intends to pursue acquisitions from Tallgrass Development that TEP expects will be sourced both from Tallgrass Development's existing portfolio of midstream assets and from additions to its portfolio from expansion projects or acquisitions that it undertakes in the future.

DISTRIBUTION
The Minimum Quarterly Distribution, 5.2% on an annualized basis at $22, price range mid-point

The minimum quarterly expected distribution is $0.2875 per unit for each whole quarter, or $1.15 per unit on an annualized basis.

Or $11.9 million per quarter, or $47.5 million on an annualized basis, based on the number of common, subordinated and general partner units expected to be outstanding upon completion of this offering

POST-IPO OWNERSHIP
Tallgrass Operations, LLC will own 68% of the common and subordinated units.

Tallgrass Development GP, LLC, as the general partner of Tallgrass Development, LP, which is the sole owner of Tallgrass Operations, LLC, has the sole voting and dispositive power with respect to the common units and the subordinated units owned by Tallgrass Operations, LLC. Tallgrass Development GP, LLC is controlled by its board of directors, which currently consists of the following: David G. Dehaemers, Jr., William R. Moler, Frank J. Loverro, Stanley de J. Osborne, Jeffrey A. Ball and John T. Raymond.

About Tallgrass

USE OF PROCEEDS

TEP expects to net $264 million from its IPO.

Procees are allocated to repay debt due Tallgrass Development.

At the closing of the IPO, TEP intends to enter into a new $500 million revolving credit facility and borrow $225 million, the proceeds of which will be used to:

  • retire the remaining $135.6 million of indebtedness assumed from Tallgrass Development;

  • pay $5.2 million in revolving credit facility origination fees; and

  • pay $85.5 million to Tallgrass Development as reimbursement for a portion of capital expenditures made by Tallgrass Development to purchase the contributed assets, which Tallgrass Development acquired together with the Retained Assets for $1.8 billion.

The indebtedness assumed from Tallgrass Development was used by Tallgrass Development to acquire certain assets from Kinder Morgan, including the assets being contributed to TEP connection with this IPO, in November 2012.

Disclaimer: This TEP IPO report is based on a reading and analysis of TEP's S-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Tallgrass Energy Partners, LP