Plains All American wraps up 2017 deleveraging plan

A Houston pipeline company with major operations throughout Oklahoma says it has achieved its 2017 deleveraging plan.

Plains All American Pipeline, L.P. and Plains GP Holdings also announced an update to its financial policy and an increase to its common unit and Class A share distributions.

Key elements of today’s announcement include:

  • Successful achievement of Plains’ August 2017 deleveraging plan and associated financial policy review;
  • Further improving PAA’s credit profile by lowering its targeted long-term debt to Adjusted EBITDA leverage ratio (S&L normalized) by 0.5x to a range of 3.0 – 3.5x (3.25x midpoint) with the objective of achieving mid-triple B equivalent investment grade ratings over time;
  • Establishing long-term sustainable minimum annual distribution coverage level of 130% underpinned by predominantly fee-based cash flows;
  • Increasing PAA & PAGP’s annualized distribution by $0.24 per common unit and per Class A share, respectively ($1.44 per common unit and per Class A share on an annualized basis), payable May 15, 2019 to holders of record on May 1, 2019, which equates to a 20% increase from the distributions paid in February 2019;
  • Adoption of an annual cycle for setting the common unit distribution level, consistent with the annual planning process; and
  • Intention to increase distributions in the future contingent on achieving and maintaining targeted leverage and coverage ratios and subject to the annual review process;
    • In the interim, expect +/- 5% annual common unit distribution increases over the next couple of years.

“We are pleased to announce the successful completion of our 2017 deleveraging plan and to provide several important updates regarding our financial policy, including our plans with respect to distributions,” stated Willie Chiang, CEO of Plains All American. “These actions reflect a balanced long-term approach focused on further enhancing financial flexibility and making disciplined investments that increase distributable cash flow and value per unit, while sustainably increasing cash returned to equity holders over time. Consistent with those objectives, we intend to continue to focus on activities to enhance investment returns and reinforce capital discipline through asset optimization, joint ventures, potential divestitures and similar arrangements.”

Al Swanson, Executive Vice President and Chief Financial Officer of Plains All American, added, “Concurrent with the completion of the 2017 deleveraging plan, we have completed a review of our financial policies and approach to capital allocation, targeted leverage and distribution management. Our financial policy review involved extensive analysis of a wide variety of considerations and potential scenarios, including an assessment of recent, current and anticipated financial market conditions for energy-related entities. ”

Swanson added, “We are taking a long-term approach designed to enhance per unit value creation by capturing growth through execution of our current capital program and disciplined pursuit of additional strategic and capital-efficient projects and joint ventures that protect and enhance our existing asset network. Consistent with previous disclosures, we expect to fund the equity portion of our routine growth capital programs with cash flow in excess of distributions, which limits, if not eliminates, the need to issue common equity to fund this growth.”

Swanson continued, “We have also established a long-term sustainable minimum annual distribution coverage level of at least 130%, underpinned predominantly by fee-based cash flows, but we expect our coverage will be higher than the minimum level for the next few years as we focus on improving our financial flexibility and credit ratings. Under the overarching construct of enhancing sustainable long-term value on a per unit basis, moving forward, we will consider our positioning, the market environment and the following four primary components of capital allocation: leverage reduction, disciplined capital investment, distribution growth, and opportunistic equity buybacks only if warranted by market conditions. In the near-to-medium term, we expect distributions and distribution growth to be our primary method of returning capital to investors.”

With respect to the PAA common unit and PAGP Class A share distribution at the increased distribution level, this represents a quarterly cash distribution of $0.36 per common unit and per Class A share, respectively or $1.44 per common unit/Class A share on an annualized basis. Additionally, with respect to PAA’s Series A Preferred Units, PAA announced a quarterly cash distribution of $0.525 per Series A Preferred Unit, or $2.10 on an annualized basis. For its Series B Preferred Units, PAA announced a semi-annual distribution of $30.625 per Series B Preferred Unit. All distributions (attributable to common units, Class A shares and Preferred Units) will be payable on May 15, 2019 to holders of record at the close of business on May 1, 2019.

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