Hiland Partners’ Financial Results
Weighted average limited partner units outstanding were 9.3 million units for the first quarter of 2009 and 9.4 million units in the year-ago quarter.
Adjusted EBITDA (adjusted EBITDA is defined as net income (loss) plus interest expense, provisions for income taxes, and depreciation, amortization and accretion expense, and adjusted for significant non-cash and non-recurring items) for the first quarter of 2009 was $10.6 million compared to $14.7 million in the year-ago quarter, a decline of 28%.
Total segment margin for the first quarter of 2009 was $21.1 million, down 8%, compared to $22.9 million in the year-ago quarter. The decreases in adjusted EBITDA and total segment margin are mainly because of unfavorable gross processing spreads and considerably lower average realized natural gas and NGL prices, partly counterbalanced by volume growth at the Woodford shale and Badlands gathering systems and about $2.3 million of foregone margin as a result of the nitrogen refusal plant at the Badlands gathering system being taken out of service because of equipment failure during in the year-ago quarter.
The decline in total segment margin was also partly counterbalanced by gains on closed/settled derivative transactions and unrealized non-cash gains on open derivative transactions for the first quarter of 2009 totaling $2.4 million compared to net losses of $2.5 million on closed/settled derivative transactions and unrealized non-cash losses on open derivative transactions in the year-ago quarter.
The partnership reported distributable cash flow (DCF) of $6.6 million for the first quarter of 2009, down 9%, compared with the $10.8 million in the year-ago quarter.
On April 27, 2009, the board of Hiland Partners GP, LLC, the general partner of Hiland Partners announced its decision to suspend quarterly distributions on the partnership’s common and subordinated units beginning with the first quarter distribution of 2009 to preserve available liquidity. The decision to suspend distributions on the partnership’s common and subordinated units was based on the board of directors’ consideration of the impact of lower commodity prices and drilling activity on the partnership’s existing and projected throughput volumes, midstream segment margins and cash flows.
The board also considered future required levels of capital expenditures and the levels and covenant ratios of the partnership’s outstanding indebtedness under its secured revolving credit facility relative to such projections. Unless the leverage covenant ratio is altered, the partnership’s debt is reorganized, or the partnership gets an infusion of equity capital, organization anticipates that the partnership will be in violation of the maximum consolidated funded debt to EBITDA covenant ratio contained in the partnership’s senior secured revolving credit facility as early as the second quarter of 2009.
Organization has initiated discussions with certain lenders under the credit facility as to potential ways to address the expected covenant violation. While no potential solution has been agreed to, the partnership would anticipate that any solution would likely require the evaluation of fees and raised rates, the combination of additional equity capital or the incurrence of subordinated indebtedness by the partnership, and the suspension of distributions for a certain period of time. There can be no guarantee that any such agreement will be reached with the lenders or that any required equity or debt financing will be available to the partnership.
Under the terms of its partnership agreement, the partnership’s common units will bear an arrearage for the first quarter’s minimum quarterly distribution of $0.45 per unit that must be paid prior to the partnership can make distributions to its subordinated units. The board will place future distribution rates based on the amount of cash available for distribution after considering the partnership’s anticipated liquidity requirements.
