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Based in Allentown, PA, Lehigh Gas Partners LP (LGP) scheduled a $120 million IPO with a market capitalization of $310 million at a price range mid-point of $20, for Thursday, October 26, 2012. Originally LGP was scheduled to trade Friday, October 27, 2012.

Five other IPOs are scheduled for the week of October 22. The full IPO calendar is available here.

S-1A filed October 17, 2012

  • Manager, Joint Managers: Raymond James.

  • Co Managers: Baird; Oppenheimer; Janney Montgomery Scott; Wunderlich Securities.

SUMMARY
LGP sells gas to retail locations which are leased from an affiliate of Getty Oil.

The projected distribution is 8.8% for the year ended September 2013, with projected distributions of $26.3 million and a cash overage of $5.2 million. Source: pages 64-65 in the S-1.

CONCLUSION
IPOdesktop expects LGP to trade up a little from the IPO price because 8.8% is an attractive payout rate, and because there is very little commodity risk. The growth potential, however, seems limited.

BUSINESS
LGP is a limited partnership formed to engage in the wholesale distribution of motor fuels, consisting of gasoline and diesel fuel, and to own and lease real estate used in the retail distribution of motor fuels. Since the predecessor was founded in 1992, LGP has generated revenues from the wholesale distribution of motor fuels to sites and from real estate leases.

Cash flows from the wholesale distribution of motor fuels will be generated primarily by a per gallon margin that is either a fixed mark-up per gallon or a variable rate mark-up per gallon.

By delivering motor fuels through independent carriers on the same day LGP purchases the motor fuels from suppliers, LGP seeks to minimize the commodity risks typically associated with the purchase and sale of motor fuels.

CASH DISTRIBUTIONS
The initial cash distribution policy is to make minimum quarterly distributions in cash of at least $0.4375 (or $1.75 on an annualized basis), 8.8% return at the price range mid-point of $20

RECENT DEVELOPMENTS
In May 2012, LGP entered into master lease agreements to lease an aggregate of 120 sites from an affiliate of Getty.

Of the 120 sites, 74 are located in Massachusetts, 22 are located in New Hampshire, 15 are located in Pennsylvania and nine are located in Maine. Of these sites, seven are subleased to, and operated by, lessee dealers, 98 are company operated sites that will be subleased to, and operated by, LGO following this offering and 15 currently are closed.

LGP is converting a significant portion of the sites that are subleased to and operated by LGO to lessee dealer-operated sites. LGP are evaluating alternatives to reopen or reposition the closed sites.

LGP expects to distribute BP (NYSE:BP) motor fuels to 88 sites and is evaluating branding alternatives for the other 32 sites.

USE OF PROCEEDS
LGP expects to net $106 million from the IPO. Proceeds are allocated as follows:

  • $71 million to pay debt.

  • $13.0 million to entities owned by adult children of Warren S. Kimber, Jr., a predecessor owner.

  • $20.0 million cash to the Topper Group and LGC as reimbursement for certain capital expenditures made by the Topper Group and LGC with respect to the assets they contributed, and/or consideration for the purchase of all of the assets of one or more of the contributed entities (LGC is one of the entities put together to finance this buy-out transaction.

Balance for working capital and general corporate purposes.

Disclaimer: This LGP IPO report is based on a reading and analysis of LGP's S-1 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: Lehigh Gas Partners LP