BreitBurn Energy Partners (NASDAQ:BBEP) appears to be set for an eventful April. It had its borrowing base redetermination delayed by one month, and concurrently reduced the elected commitment under its credit agreement by $400 million. There has also been no news about the company's preferred unit distribution. This leads me to believe that there is a significant chance of a major announcement during April. This could potentially involve EIG, as its representative to BreitBurn's Board of Directors recently resigned, and it also recently ended its offer for another E&P company.
BreitBurn's Borrowing Base
BreitBurn voluntarily reduced the elected commitment under its credit agreement from $1.8 billion to $1.4 billion and had its borrowing base redetermination delayed from April 1 to May 1. If the borrowing base stays at $1.4 billion, that would be a positive for the company, as it would have approximately $200 million in availability remaining. If the borrowing base was going to be set at $1.4 billion for certain, though, there would be no reason to delay the redetermination. A $1.4 billion borrowing base is acceptable for BreitBurn's liquidity, as it would be very unlikely to need to max out the $1.4 billion in the normal course of business before the next borrowing base redetermination.
The borrowing base redetermination to be pushed back one month makes me believe that its final amount will be determined by what happens in April.
A Preferred Distribution Suspension May Be Upcoming
Though there hasn't been any official announcement yet, it appears that the preferred distribution may be suspended. BreitBurn typically declares distributions around the turn of the month, with the latest distribution announcement in recent history coming on the 4th (in January). With no distribution announcement as of April 5th, chances of the preferred distribution continuing have decreased significantly. It seems a bit peculiar that BreitBurn hasn't announced news about the preferred distribution one way or the other, though, which leads me to believe that the preferred distribution will be discussed as part of a larger announcement soon.
Is EIG Interested In BreitBurn?
Although this is entirely just my speculative thought, I wonder if EIG is interested in making a near-term bid for BreitBurn similar to the one it made for Pacific Exploration & Production (PEGFF). The timing of some recent events fits with this theory, although there are also multiple other possible reasons for the following recent events.
In late March, Kurt Talbot resigned from BreitBurn's Board of Directors. He was EIG's appointee to the board from when EIG made an investment in BreitBurn in April 2015. At around the same time as Talbot's resignation, EIG ended its offer for Pacific Exploration & Production. It had previously launched a tender offer for Pacific's bonds, offering 16 cents on the dollar.
EIG now is able to redeploy the money it had earmarked for the Pacific acquisition, and the roughly $650 million it would have cost EIG to acquire Pacific's bonds would be enough to make an offer for BreitBurn's unsecured bonds as well as pay down its credit facility to a significant extent. Perhaps the potential for an EIG bid is what also led BreitBurn to request a delay in its borrowing base review.
The eventual result of any EIG takeover would likely be the cancellation of the common and preferred units. EIG mentioned that the low value of Pacific's bonds indicated that its common shares had no value, and BreitBurn's bonds are currently no better off. A complicating factor for any restructuring is the cancellation of debt income factor, though.
April promises to be an eventful month for BreitBurn's future. It has delayed its borrowing base redetermination by one month, likely due to actions that it may take during April. The status of the preferred distribution is currently unknown, as there has been no announcement during the period that the company typically announces distributions. My speculation is that EIG could be working on some sort of offer, as its representative to BreitBurn's Board of Directors recently resigned, and EIG also pulled its offer for another oil E&P company. If that doesn't occur, there may still be an attempt at debt restructuring in the near term if BreitBurn has figured out a way to address the tax issues involved in restructuring MLP debt.
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Additional disclosure: Short BBEPP.
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