NuStar Energy (NS) Divests 50% of Asphalt Business; Updates Q2 Outlook and Dividend

July 6, 2012 10:36 AM EDT
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This morning, NuStar Energy (NYSE: NS) announced that it has entered into a Purchase and Sale Agreement with an affiliate of Lindsay Goldberg LLC, a private investment firm, to create a joint venture that will own and operate NuStar’s asphalt refining assets and related working capital.

NuStar and Lindsay Goldberg will each have a 50% voting interest in the joint venture and Lindsay Goldberg is paying $175 million for its interest.

Cash proceeds received by NuStar as a result of this transaction, including the $175 million paid by Lindsay Goldberg, should be in the $400 to $500 million range dependent on the joint venture’s working capital requirements. The joint venture will pay NuStar for inventories transferred at the time of closing and the payment will be financed by a credit facility now being arranged for the joint venture.

Total proceeds are expected to be less than the carrying amount for the assets causing a significant non-cash charge to earnings in the second quarter of 2012.

NuStar also updated it's outlook by saying 'Continued weak demand and lower gross margins are expected to cause the EBITDA of the company’s asphalt operations to be negative, which will obviously be significantly lower than the $55 million of EBITDA generated in the second quarter of 2011'.

Second quarter earnings before interest, taxes, depreciation and amortization (EBITDA) results are expected to be significantly lower than the $160 million earned in the second quarter of 2011. Lower projected results in the company’s asphalt and fuels marketing segment and anticipated non-cash charges relating primarily to the announced sale of 50% of NuStar Energy’s asphalt operations are the main causes of the expected lower second quarter results.

However, the company is maintaining its $1.095 second quarter cash dividend (annual yield ~8%)

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