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Plains All American (PAA) Issues Notes for Debt Refinancing

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Plains All American Pipeline L.P. (PAA - Free Report) announced that it has issued senior notes to refinance outstanding debt. The firm intends to utilize the net proceeds from the offering to partially repay the principal amount of $600 million or 5.00% senior notes due 2021.

The proceeds, post repayment of the principal amount, will be utilized for general partnership purposes that may include repayment of indebtedness, acquisitions, capital expenditures and additions to working capital.

Financial Stability Amid Unprecedented Economic Crisis

The novel coronavirus outbreak has impacted the global economy, primarily due to lockdown and stay-at-home orders that lowered demand. In such a situation, preserving liquidity, meeting debt obligations and providing services to customers were among the topmost priorities of the company.

Plains All American lowered 2020-2021 capital expenditure by 33% or $750 million to $1.55 billion from its previous guidance of $2.3 billion amid unprecedented economic distress caused by COVID-19. This decision helped the firm preserve liquidity and allowed it to continue with capital projects, albeit slow, taking into consideration the expected decline in demand from customers.

Plains All American’s decision to refinance debts will actually allow it to enjoy the benefits of rate cuts announced by the Federal Reserve. Refinancing high-priced debts with low-interest bearing notes will allow the firm to lower interest expenses.

What’s Ahead?

At present, drilling activity levels are comparatively low in resource-rich basins in the United States. However, since the process of reopening of lockdowns has already started, it is expected to increase drilling activities and drive demand for midstream services. Plains All American, through organic projects and strategic JVs, has well-spread assets in the Permian region. The Wink to Webster JV, expansion of the Diamond Pipeline, Saddlehorn JV, Red River JV and Red Oak JV are expected to come online in the 2020-2021 time period. The novel coronavirus outbreak will likely delay the completion time of the projects.

Plains All American also announced the formation of the W2W Pipeline joint venture (JV) with the subsidiaries of ExxonMobil (XOM - Free Report) and Lotus Midstream, LLC. The JV is working on the construction of a pipeline to transport crude oil from multiple locations in the Permian basin to the Texas Gulf Coast. All these projects will drive the firm’s performance, when the drilling activities resume in full swing.

Price Movement

Units of Plains All American Pipeline have underperformed the industry year to date.



Zacks Rank & Key Picks

Plains All American currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks from the same industry include PBF Logistics LP (PBFX - Free Report) and Enterprise Products Partners L.P. (EPD - Free Report) , each holding a Zacks Rank #2 (Buy).

In the last four quarters, PBF Logistics LP and Enterprise Products delivered average positive surprise of 8.9% and 4.4%, respectively.

The Zacks Consensus Estimate for earnings for the current year for PBF Logistics LP and Enterprise Products has moved up 2.7% and 2.1%, respectively, in the past 30 days.
 
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