Based in Denver, Colorado, American Midstream Partners, LP (proposed symbol AMID) scheduled a $75 million IPO with a market capitalization of $184 million at the price range mid-point of $20 for Wednesday, July 27, 2011. The full IPO calendar for the week of July 25th includes 12 IPOs scheduled to raise $2 billion.
CONCLUSION -- Even though the projected annual payout is 8.25% this is not a good deal. The general partner, a private equity firm, is looking to repay debt and reward itself with various fee payments. The general partner also expects to borrow an additional $30 million and make a $28 million distribution to pre-IPO equity holders.
There is a proforma cash distribution deficit for the 12 months ended December 2010 of $5.3 million and also $4.3 million for the 12 months ended March 2011. Plus, $2.2 million of IPO proceeds are earmarked to go to a piggy bank for cash distributions for the 12 months ending June 2011.
There are other better limited partnership deals available that have strong general partners "from the business." A recent example is Oiltanking Partners.
BUSINESS -- AMID is a limited partnership that was formed by AIM (see "sponsor" below) to own, operate, develop and acquire a diversified portfolio of natural gas midstream energy assets.
AMID is engaged in the business of gathering, treating, processing and transporting natural gas through ownership and operation of nine gathering systems, three processing facilities, two interstate pipelines and six intrastate pipelines.
Primary assets, which are strategically located in Alabama, Louisiana, Mississippi, Tennessee and Texas, provide critical infrastructure that links producers and suppliers of natural gas to diverse natural gas markets, including various interstate and intrastate pipelines, as well as utility, industrial and other commercial customers. AMID currently operates 1,400 miles of pipelines that gather and transport over 500 MMcf/d of natural gas.
MINIMUM QUARTERLY DISTRIBUTION -- AMID projects a minimum cash distribution of 8.25% at $20 (price range mid-point), or $.4125 per unit per quarter, or $1.65 per unit on an annualized basis.
PROFORMA CASH DISTRIBUTION SHORTFALLS -- AMID's proforma figures show a cash shortfall of $5.4 million for the 12 months ended December 2010 and a cash shortfall of $4.34 million for the 12 months ended December 2010.
For the for the 12 months ended June 30, 2012, AMID allocates a use of funds of $2.2mm raised from this current IPO as a "buffer." S-1, pages 54 and 57.
CUSTOMER CONCENTRATION -- AMID suffers from customer concentration is its two business segments.
In the Gathering and Processing segment, Contango Operators Inc. and Venture Oil & Gas Co. accounted for 19% and 13%, respectively, of segment gross margin for the year ended December 31, 2010 and 15% and 23%, respectively, of segment gross margin for the quarter ended March 31, 2011.
In the Transmission segment: ExxonMobil (XOM) and Calpine Corporation (CPN) are the two largest purchasers of natural gas and transmission capacity, respectively, in the Transmission segment and accounted for 43% and 10% of the segment revenue for the year ended December 31, 2010 and 50% and 7% of the segment revenue for the quarter ended March 31, 2011.
In addition, the Transmission segment derived 38% and 30% of its gross margin from arrangements with Calpine Corporation for the year ended December 31, 2010 and the quarter ended March 31, 2011, respectively.
CONFLICTS -- AMID’s partnership agreement does not prohibit AIM, AIM Midstream Holdings or their respective affiliates other than AMID’s general partner from owning assets or engaging in businesses that compete directly or indirectly with AMID.
In addition, AIM Midstream Holdings may acquire, construct or dispose of additional midstream or other assets in the future, without any obligation to offer AMID the opportunity to acquire or construct any of those assets.
SPONSOR -- AMID’s sponsor is American Infrastructure MLP Fund, L.P., is a private investment firm specializing in investments in energy, natural resources, infrastructure and real property.
AMID’s sponsor is not a strong industrial company in the sector, has payout shortages, and there is pricing at a high proposed payout rate of 8.25%.
At the $20 mid-point of the proposed price range OILT projected an annual payout of 6.75%. OILT priced at $21.50 and rose to almost $25. OILT is an example of the importance of having a strong industrial partner, rather than a private equity firm that's milking the balance sheet.
USE OF PROCEEDS -- AMID expects to net $70 million from the IPO. IPO funds are allocated to repay $60 million of debt, to pay offering expenses of $3.3 million, to pay a $2.5 million termination fee to the private equity sponsors, to establish a cash reserve of $2.2 million related to non-recurring deferred maintenance capital expenditures for the 12 months ending June 30, 2012, and to make a $2mm distribution to the general partner and pre-IPO unit holders.
In addition, AMID plans on borrowing an additional $30 million to pay insiders $28 million. S-1 page 46.