Based in Oklahoma City, OK., Compressco Partners L.P. (GSJK) is scheduling a $50 million IPO with a market capitalization of $308 million at the price range mid-point of $20 for Thursday June 16, 2011. IPO Calendar includes three IPOs for this week.
SUMMARY -- GSJK is a limited partnership formed by TETRA Technologies (TTI), which has a market cap of $960 million. GSJK provides natural gas wellhead compression-based production enhancement services to domestic and international customers.
The 'parent' TTI’s stock is down 15% to $12.49 from $14.62 in the last three months -- not good. TTI showed losses for the quarters ended December 31, 2010 and March 31, 2011 -- not good.
EXPECTED PAYOUT -- GSJK expects to pay $.3875 per quarter, $1.55 annually, which is 6.2% at the price range mid-point of $20. GSJK expects excess cash to be generated for the 12 months ending June 30, 2012.
CONCLUSION -- Most public limited partnerships are not operational companies that depend on the sale of services. We believe natural resource limited partnerships are more suited to paying an increasing flow of distributions
It’s unusual for an operating company like GSJK to pay out most of its cash to a limited partnership, because it puts GSJK at a financial disadvantage relative to its competition.
GSJK is a small deal from an apparently struggling parent. We’ve seen stronger limited partnerships that have IPO’d this year.
ABOUT TTI -- The 'parent' TTI is an oil and gas services company, focused on completion fluids and other products, production testing, wellhead compression, and offshore services, including well plugging and abandonment, decommissioning and diving. TTI’s Production Enhancement Division consists of two operating segments: Production Testing and Compressco.
POST IPO OWNERSHIP OF GSJK
- Publicly held common units: 2,500,000, 15.9%
- Common units held by affiliates of TTI: 6,597,257, 42.1%
- Subordinated units held by affiliates of TTI: 6,273,970 ,40.0, %
- General partner interest held by Compressco Partners GP: 2.0 %
Total: 15,371,227, 100.0%
PROFORMA CASH DISTRIBUTION COVERAGE -- On a proforma basis GSJK would have generated enough cash to pay 100% of the expected distributions on the common units for the 12 months ended December 31, 2010, and for the 12 months ended March 31, 2011. S-1 page 54. For the 12 months ending June 30, 2012, GSJK expects to generate a cash surplus after all cash distributions are paid. S-1 page 57
USE OF PROCEEDS -- GSJK is a smaill IPO that expects to net $39 million, with $29million allocated to repay debt and $9 milion allocated for general partnership uses.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.