Spectra Energy Partners LP Earnings Call Nuggets: Distribution Growth and Accretive Transactions
Spectra Energy Partners, LP (NYSE:SEP) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Becca Followill – U.S. Capital Advisors: With minimal distributable cash flow growth expected for 2013, a higher share count and a fairly tight coverage ratio in 2012, can you talk about what this means for distribution growth in 2013 and are you willing to drop below one-time for a period of time in expectation of getting some of these dropdowns later in a year?
Julie Dill – President and CEO: Yes, thanks Becca. We do expect that we are going to be having conversations with our Board of Directors. We visit with them every quarter to talk about what our distribution plans should be. We’ve been very consistent with our distribution increases and we are not looking forward to making many changes with that, with the possibility of increasing distributions as we grow our portfolio. It is possible that we may dropdown slightly below a one in anticipation of the dropdowns that we foresee coming. But again, we are going to do that in coordination with our Board of Directors to ensure that they are comfortable with our cash position.
Craig Shere – Tuohy Brothers: Let me piggyback a little on Becca’s question because a couple of the assets to be dropped down including Express-Platte and the (DC Pipe & Trust), probably have a couple of years plus of organic just uplift from the time that you might get them. So as I think about a very tight coverage ratio that you might already have and pricing given obvious accretion over a couple year period, where do you stand in terms of the need to price these things immediately accretive?
Julie Dill – President and CEO: Well, we are always looking to do accretive transactions, Craig, and one of the things that we’ll have to look at is what, is the size of the drop that we would be looking at. When you look back at our history, we’ve kind of done that $0.5 billion kind of on average, kind of a drop. So an asset like an Express-Platte that, Spectra is purchasing for just a little below $1.5 billion, not all of that would come all at the same time. So we’d have to be looking to see what the right amount was for the drop, again to make sure that we have the ability to properly finance it through additional units as well as some debt financing and spread that out over the period of time that it doesn’t expense for our unit holders and that it is accretive transaction for us as well.
Craig Shere – Tuohy Brothers: Do you have any specific targets in mind on the debt and equity mix for funding drop downs?
Julie Dill – President and CEO: No, we really don’t do that, Craig. When we look at any transaction, we’ve got some modeling that we do. But we haven’t gotten to that point yet of knowing what that debt to equity would look like.
Craig Shere – Tuohy Brothers: If I’m not mistaken, Maritimes & Northeast that kind of half interest at the SE level was dropped at about 10.5 times EBITDA and I’m saying that about right?
Julie Dill – President and CEO: That’s right Craig. Close.
Craig Shere – Tuohy Brothers: So for a mature asset, that is not – is that a sustainable multiple or do you think with more drop downs as you get deeper into the 50% split that multiple would have to come in a little bit?
Julie Dill – President and CEO: Craig, we’re not going to comment right now on what those multiples look like. As I mentioned, we did not have conversations at all with our general partner, and we want to make sure that anything that we are doing certainly make sense for the Spectra Energy shareholders, as well as the Spectra Energy Partners unit holder. So, we will make sure that we are doing the right thing all around and the multiples that we will be using will be reflective of that.
Craig Shere – Tuohy Brothers: You obviously have your plate a little full with likely dropdowns from your C-Corp sponsor over the next 12 years, but do you see any opportunities for third-party acquisitions?
Julie Dill – President and CEO: It’s an interesting question. We continue to have our M&A group looking at other opportunities. But with the backlog that Spectra now has of these MLP-able assets that we have that’s really going to be our primary focus here in the near-term. However, if something comes up its really opportunistic. We certainly wouldn’t say no to that, but again, we’re really excited that we have this backlog that Spectra Energy has got in-house now and feel very confident about our growth potential going forward.