Spire to buy MoGas, Omega pipelines from CorEnergy for $175M

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CorEnergy Infrastructure Trust (NYSE:CORR) +14.7% pre-market Thursday after Spire (NYSE:SR) agreed to acquire the MoGas System, which includes the MoGas Pipeline and Omega Pipeline, for $175M.

The MoGas System is an interstate natural gas transmission and distribution system providing service to markets in Missouri and Illinois.

MoGas interconnects with the Spire STL Pipeline and other regional pipelines to deliver gas to Spire's (SR) customer base in St. Charles, Franklin, and western St. Louis counties in Missouri.

CorEnergy (CORR) said the sale will allow it to significantly de-leverage its balance sheet and strengthen its overall capital structure, and the proceeds will be used to repay all CorEnergy bank debt, ~$100M.

More on CorEnergy Infrastructure Trust:

• Financial and valuation comparison to sector peers
• Analysis: CorEnergy: Common And Preferred Distributions Cut, What's Next?
• Stock price return: Down 51.5% YTD, down 58.5% in the past 12 months

Comments

[DHCN]

Post Sale EV/EBITDA multiple
EV: 25M(Equity)+130M(Preferred)+100M(Debt)= 255M

(Debt may lower due to distressed bond price who knows maybe they can buy it all with 50 million left over to retire entire debt)

I think EBITDA will be least 30M

EV/EBITDA = 255M/30M= 8.5

REITs average EV/EBITDA is 19
OILs average EV/EBITDA is 10

To be safe lets follow 10. Price should be around 2.80 dollars per share for common.

Also managements' CLASS B shares will convert to Common shares in Q1 2024. Afterward we will be on same boat as management. I think shares have been pressured down to get better conversion for CLASS B and now conversion is done and favorable news will come out.

[M. Washburn]

@DHCN I really appreciate your analysis. Could you share your assumptions involved with your EBITDA estimate. thank you

[DHCN]

Post Sale- Analysis
California Pipeline remained.

Corr acquired California Pipeline at 350MM
with amortization and being conservative lets just say 300MM.

Pre Total Debt was 249M
Pay full 160M with Mogas sale
Remaing debt is about 90M

300M-90M is 210M.

Post sale Balance sheet.
Asset: 300M
Debt: 90M
Equity: 210M

With Class B converted 1:1 to Class A
total outstanding common shares are 25M

Book Value per share is 210M/25M= 8.4 dollars.
Debt to Equity (90M/210M) ONLY 43%!!!

Debt to equity is only 43% I think we will survive!

1 dollar per share means.
Market is valuing company 90M(Debt) + 25M (Equity) = 115M!
I believe the value of share should be 2.50 dollars. so 90M + 50M. = 140M! (compared to peer)
Because CORR is slimmer than before I think M&A can happen with premium because pipeline is restricted business and it is better just buy already built pipeline.

Pipeline is very restricted business and no one ever be able to get permit to build in California.

I am 100% sure to build same pipeline will cost least 500M. Plus time consuming to get permit in California. (just check TransMountain project taking forever and the cost increase enormous every year and it still not finished been 10 years!)

California Pipeline that already built is worth only 115M? with low debt?
Too cheap to ignore.

[Mister Jimmy]

@DHCN CORR needs a rate increase on that California pipeline that is a huge and politically-unattractive approval for carbon-hating California. The remaining assets just don’t have enough earnings potential to create any further value for common shareholders. Debtors and preferred holders may salvage something.

[DHCN]

@Mister Jimmy Trans-mountain Pipeline expansion spent 25-30 Billion for
increasing capacity from 300,000 to 890,000. Length of "700" miles with 10 years of construction and still not done.

Crimson have "1,800"miles of pipeline with 300,000 capacity.
I honestly think 1 dollars per share is a joke. Just imagine how much it will cost to build same identical pipeline today. Also good luck getting permit to build new pipeline in CA.

According to pipeline association average cost per mile to build is about 5M-8M in 2022.

CorEnergy own 49% of Crimson with Call option to buy remaining 51%.
So 1,800 miles* 49% is 882 miles.

882 miles* 5 M is about 4 billion to build. (assumption no headache for permit). With CA land price I am sure it is higher than average too.

Instead spending 5-10 Billion to build you can just pay 1 dollars per share accounting 25 M equity and control 1,800 miles of pipeline.

I am asset playing CorEnergy not the dividend. I live in Alberta and I know
Pipeline have competitive advantages than railway and trucks.

1 dollars per share is a joke I wish i have 25 M so I can buy all the equity and control the 1,800 Miles of pipeline. If they don't approve price increase I will temporary close and it will be fun to watch consumer price of oil in CA.
Truck and railway can't compete with pipeline.

[M. Washburn]

@DHCN thanks for your analysis. Looking to add significantly more. Good risk-reward.

[I_like_preferreds]

I know this was pre-announced that they wanted to sell. But still, now they have no income producing asset and the bonds will default. So great to hear banks got paid ... Just kidding

[Mister Jimmy]

This sale improves the balance sheet, but what does it do to the income statement? Are there any worthwhile assets remaining?

[King Rat]

@Mister Jimmy According to their last report, yes. Beyond these assets, they had roughly $375 million in assets.

These were listed as around $108 million in assets and $8 million in liabilities ($100 million equity) so getting net proceeds of $165 million is a win. What they will do with the other $65 million dollars, whether they repurchase some of their common or preferred stock at a discount, make acquisitions, pay down other debt, or whatever, I do not know.

I once held CORR and exited the position years ago but came across this article by accident.

[User 123456]

$CORR PRA prefs with $25 face seem compelling after this $165m in net proceeds to delever!!!

[rusty13]

Bought $CORR a while ago thinking I was getting a decent risky spec play only to watch it become a penny stock. Owner at $4 ugh. Hard to believe this was a $40+ company at one time. Being in CA. should have been a deep red flag.