Plains All American Pipeline, L.P. (PAA - Analyst Report) issued $1.25 billion senior notes, in two tranches. One series consists of $750 million 3.65% senior unsecured notes due on June 1, 2022 and the other comprises $500 million 5.15% senior unsecured notes due on June 1, 2042.
The offer prices of these unsecured notes are 99.823% (per $100.00 principal) with yield to maturity of 3.67% and 99.755% (per $100.00 principal) with yield to maturity of 5.165%.
Plains All American Pipeline plans to utilize the net proceeds of $1.25 billion from this offering to acquire entire outstanding shares of BP Corporation North America Inc.’s subsidiary BP Canada Energy Company. If the partnership fails to acquire the unit, it will use this fund for future acquisitions and ongoing capital expenditure programs.
It is a normal practice for the partnership to issue senior notes for meeting its short and long-term fund requirements. Prior to this issuance, on January 14, 2011, the partnership issued $600 million 5% senior unsecured notes due on February 1, 2021.
The partnership intends to utilize the proceeds to make investments in the PAA Natural Gas Storage, L.P., repayment of long-term debts, lower its dues under its revolving credit facility, and make future acquisitions.
We expect that Plains All American Pipeline is well positioned with strong business models and planning to acquire BP assets in 2012. This strategic acquisition is expected to act as a positive catalyst and boost the partnership’s midstream business through additional pipelines, storage capacity, fractionation plants and supply contracts.
The partnership also reported strong fiscal 2011 revenue numbers across the segment with $34.28 billion, up 32.4% year-over-year from $25.89 billion in 2010.
Interest expenses of the partnership increased 2% to $253 million as of December 31, 2011, from $248 million in the year-ago period. Since, the partnership has just completed the issuance, we expect the interest expenses of the partnership to exceed 2011 levels and add to its interest burden.
Plains All American Pipeline currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
Houston, Texas-based Plains All American Pipeline, L.P. owns strategically located assets in well-established oil producing regions, catering to major U.S. refineries and distribution markets. Other than organic growth opportunities, the partnership also relies on acquisitions to spur growth. The partnership competes with Enterprise Products Partners L.P. (EPD - Analyst Report) and Sunoco Logistics Partners L.P. (SXL - Analyst Report).