CVR Partners Discloses Distribution Estimates

Apr.25.12 | About: CVR Partners, (UAN)

In keeping with SEC disclosure requirements of material information (SEC Reg FD), CVR Partners (NYSE:UAN) on Monday made public estimates for the MLP's expected future cash distributions made by its parent company, CVR Energy (NYSE:CVI). The 8-K filing can be found on EDGAR, the SEC document database, which has free access by the public. Go here.

The refinery parent's estimates for the nitrogen fertilizer subsidiary were made in the course of the board's ongoing review of a hostile tender offer made by IEP Energy, a wholly owned subsidiary of Icahn Enterprise Holdings, aka the holding company of Carl Icahn, corporate raider.

What was interesting in the filing was the glimpse of expectations for future cash distributions for the nitrogen fertilizer MLP, made and updated in April by CVR Energy management.

The forecast pre-tax cash distributions (on a 100% basis for both CVR Energy and the public minority interest) and the forecast cash distributions expected per unit are as follows:

2012 $ 138 million $1.89

2013 $ 142 million $1.945

2014 $ 152 million $ 2.08

2015 $ 133 million $ 1.82

2016 $ 136 million $ 1.86

Technically, these forecasts were made by CVR Energy, and CVR Partners and its General Partner disclaim any ownership of them. In reality, the senior management of CVR Energy and Partners are in close cooperation and therefore the forecast probably came from CVR Partners staff.

The forecast should be considered a "best guess" as to the future as made in April, with the obvious caveat that future crop year yields, crop prices and fertilizer pricing and demand are virtually unknowable.

It should be noted CVR Energy records distributions from the subsidiary when actually received, whereas CVR Partners pays out distributions for the previous quarter in the current quarter.

Therefore, the $1.89 forecast above includes the 58.8 cent distribution that CVR Partners made attributable to Q4 2011, but declared in January and paid in February, 2012.

Subtracting this quarter, it appears CVR Energy is expecting $1.40 per unit in total distributions for Q1-Q3 2012 from CVR Partners interest.

This is more or less consistent with the $1.50 to $1.75 guided cash distribution CVR Partners made for all of its calendar and fiscal 2012, when they released Q4 and full year 2011 fiscal results on February 22.

Since we expected 43.3-48.3 cents to be declared by Partners in their Q1 to be released May 1 (purely a result of deduction from their various forecasts made), unit holders might expect another combined $.90-$1.00 for Q2 and Q3 2012.

However, Q1 might come in better than expected, given the warm winter, early start to corn planting and rush to buy nitrogen fertilizers that was evident in March.

There is nothing in Monday's estimates to indicate the likely cash distribution level in Q4. But we would expect little to no cash distribution, given at that time CVR Partners would be in the midst of both a biennial plant turnaround, and an installation, hookup and commissioning of their much vaunted UAN plant expansion.

As shown in Monday's release, the distribution is expected to bounce back to $1.945 in 2013, boosted by incremental EBITDA produced from the extra UAN production.

UAN prices have rebounded recently, in tandem with urea prices, which skyrocketed in March and early April. CVR Partners sells UAN and ammonia into the Southern Plains wheat belt, and sidedressing application of nitrogen on maturing winter wheat was brisk during Q1.

However, Gulf area ammonia prices are being pressured from expectations that further production will be forthcoming from the PotashCorp (NYSE:POT) ammonia start-up at its Geismar Louisiana complex. Although it will be internally used for UAN conversion, the reduced need for merchant ammonia, previously imported from Trinidad, will probably cause a ripple effect of surplus imports in the Gulf region. In addition, there was the reported restart of the OCI ammonia/methanol plant with an ammonia capacity of 250,000 mt/yr, coming out of Beaumont, Texas. This has also pressured Gulf ammonia pricing.

Southern Plains ammonia is the $550/st range rather than the $700 plus range achievable in the Midwest corn belt, due to the proximity to NOLA. CVR Partners needs more than $600 per ton in remaining average ammonia sales realizations for the rest of the year to achieve its original IPO EBITDA guidance of a $1.92 distribution level.

The 800-pound gorilla in the room is the increasing likelihood CVR Energy will soon become the property of corporate raider Carl Icahn. CVR agreed to allow the $30 per share tender offer to proceed, but with additional conditions. When the deal closes, Icahn will be motivated to liquidate the refinery and a sale of the MLP will be planned at some point, if anything to make the refinery more saleable.

CVR Partners and CVR Energy brought forward their Q1 release dates by one day due to internal scheduling, and will report on May 1 after the market closes, with respective conference calls on the following morning at 9:30 a.m. and 11 a.m., EST.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.