Hi-Crush Rises On Acquisition, Expansion, Financing Plans

Hi-Crush Partners LP HCLP popped 22.4 percent Monday and continued higher on a string of corporate news. 

"Our announcements today touch all aspects of our Mine. Move. Manage. operating strategy, further diversify our business and elevate Hi-Crush's position as an industry leader in the growing market for frac sand and its delivery," CEO Robert Rasmus said in a statement. 

Acquisition And Expansion

Hi-Crush is purchasing FB Industries, a manufacturer and marketer of silo-based frac sand management systems, for $60 million, the company said. 

The transaction is on track to close in the third quarter and should leave Hi-Crush with diversified revenue streams and capacity for 17.3 million tons of nameplate frac sand per year, according to the company. 

The firm also amended a sand supply and PropStream services agreement with a “supermajor” customer supporting an 850,000-ton-per-year Northern White production expansion and creating opportunity for a new facility supporting 3 million-tons-per-year in-basin Permian growth.

The expansion is expected to be complete in the first quarter of 2019, while the new complex will be in service in late December 2018.

"We continue to expect demand for frac sand to grow to over 110 million tons in 2018, with expectations for 2019 demand to be even higher,” CFO Laura Fulton said in a statement. 

“The tightness in reliable sand supply, resulting from this significant demand growth, as well as delays in our competitors' announced construction projects, puts an even greater emphasis on the need for a fully integrated frac sand supply and logistics provider."

Financial Implications

Hi-Crush raised its 2018 capex guidance from between $35 million and $45 million to between $180 million and $210 million to account for new construction, expansion and equipment.

It also announced an intent to replace its existing revolving credit facility with a $200-million credit agreement, a deal the company expects to close in the third quarter.

Additionally, Hi-Crush aims to refinance its senior secured term loan credit facility and fund its acquisition of FB Industries with a private placement offering of $450 million of senior unsecured notes due in 2026.

Shareholder Returns

The Hi-Crush board announced a quarterly dividend raise from 22.5 cents per unit to 75 cents per unit. That elevates the annualized return to $3 and positions Hi-Crush to convert its classification.

“This distribution meaningfully increases the cash paid directly to unitholders, while also improving our organizational flexibility by allowing for the potential conversion of the partnership from an MLP to a c-corporation at some point in the future,” Fulton said.

“Our partnership agreement includes an IDR reset provision, which requires four consecutive quarters of distributions above [71 cents] per unit, and provides one path of many to a potential conversion to a c-corporation." 

Management estimates second-quarter revenue will fall between $247 million and $249.5 million.

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