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NuStar Logistics LP, a fully owned affiliate of San Antonio-based publicly traded partnership NuStar Energy LP (NS - Analyst Report), has closed the offering of 6.750% senior notes worth $300 million, maturing on Feb 1, 2021.  

NuStar Logistics issued the notes at 100% of their par value, while the rate of return that is expected at maturity is 6.750%. NuStar Energy will be the parent guarantor of the notes while NuStar Pipeline Operating Partnership LP, another subsidiary of NuStar Energy, will remain the affiliate guarantor.

The net proceeds of roughly $296.3 million will be utilized for general partnership issues, which include the settlement of part of the outstanding debt under the revolving credit facility of NuStar Logistics. The debt was used for capital expenditures, working capital needs along with the repayment of senior notes.  

NuStar Energy is a master limited partnership (MLP) that engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico and the U.K.

NuStar Energy’s exposure to asphalt business exposes it to volatility in commodity prices. Along with the inherent seasonality of the road construction business, this increases the partnership’s risk profile. As such, NuStar Energy is not a pristine midstream MLP focused entirely on fee-based and relatively low risk infrastructure assets.

Moreover, we remain concerned about NuStar Energy’s high debt level, which leaves the partnership vulnerable to an extended downturn. As of Jun 30, 2013, NuStar had debt (including current portion) of $2.5 billion, representing a debt-to-capitalization ratio of around 50.6%.

The partnership currently retains a Zacks Rank #5 (Strong Sell), implying that it is expected to significantly underperform the broader U.S. equity market over the next 1 to 3 months.

However, one can look at oil and gas production pipeline MLPs like Magellan Midstream Partners LP (MMP - Analyst Report), Delek Logistics Partners LP (DKL - Snapshot Report) and Pioneer Southwest Energy Partners LP that offer value. Magellan Midstream retains a Zacks Rank #1 (Strong Buy), while Delek Logistics and Pioneer Southwest Energy sport a Zacks Rank #2 (Buy). 

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