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Niska Gas Storage (NKA) IPO NOT a good deal

|Includes: EPB, KMP, NKA, PAA Natural Gas Storage, L.P. (PNG), WPZ

Niska Gas Storage (NYSE:NKA) $350mm IPO, at price range mid-point of $21
Scheduled for Wednesday, May 12

NKA is a financial engineering deal designed to benefit owning private equity firms, Carlyle & Riverstone.

Compare to PNG, see NKA IPOreport
If investors want a dividend return comparable to what NKA is offering, it’s much safer to go with an existing LLP in a similar business with a strong parent.  A strong parent implies a believable growth plan. NKA is fully mature with no growth plan (PNG has a growth plan)

In the NKA IPOreport notice that NKA’s percent of interest paid to revenue pre-IPO is 42%.  Successful private equity IPO;s seldom if ever have an income statement that leveraged by debt.

Compared to PNG, NKA only looks less ‘expensive’ because PNG is bringing online more storage facilities that are already leased.

The problem with NKA is that it’s losing money and its interest payments are too high, as a % of revenue.

NKA’s income statement is in a down-trend and NKA lost money for the nine months ended December 31, 2009, see below.  Plus the balance sheet is too leveraged by debt that was used for dividends to the private-equity owned parent.  

NKA’s ‘expected’ payout of 6.7% doesn’t look as stable & strong as PNG’s.

It’s a textbook case of a private equity firm borrowing on a company’s balance sheet to pay themselves dividends, then going to the public market for ‘equity’ pay the dividend debt.
Largest independent owner and operator of natural gas storage assets in North America.

PRIVATE EQUITY relationship with Holdco
After IPO, Holdco will own 48.2% of NKA and all incentive distribution rights
Over 95% of the equity in Holdco is owned by the Carlyle/Riverstone Funds, with the balance owned by current and former officers and employees

read more in the NKA IPOreport

Disclosure: none