Summit Midstream Partners (SMLP) Stock Rockets On Financial Results

Summit Midstream Partners LP SMLP Stock News

Summit Midstream Partners LP (NYSE: SMLP) is screaming for the top in the market this morning, and for good reason. The company announced its financial results, outlining a strong quarter and improving guidance. Here’s what’s going on:

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SMLP Stock Rockets On Financial Results

In the press release issued this morning, Summit Midstream Partners made some pretty big announcements. Firs tand foremost, capital expenditure guidance was adjusted to between $55 million and $65 million. This is largely driven by expectations of the company’s share of Double E project development to be around $300 million. That figure comes in 15% below the projects original budget.

In the quarter, the company worked to improve its financial standing by retiring $210.9 million of sinior notes at a weighted average discount of 29%. SMLP also said that it eliminated $120.1 million in outstanding indebtedness, net of cash since December 21, 2019.

The company also exchanged 62,816 Series A Preferred Units for about 12.3 million SMLP common units in the third quarter. This ultimately reduced the aggregate value of Series Preferred Unitys by about $62.8 million at a discount of about 84%.

The company said that it expects for the settlement of the DPPO to close in the fourth quarter. Finally, SMLP said that subsequent to September 30, 2020, it repurchased $95.6 million of 5.75% senior notes due 2025 at a weighted average discount of 32%. This eliminated about $30.8 million in debt.

In terms of financial results, Summit Midstream Partners generated net income of $25.6 million and adjusted EBITDA of $59.8 million. Importantly, net income included a $24.7 million gain from early extinguishment of debt due to the company’s open market purchases and public tneder offers for its senior unsecured notes.

Natural gas volumes came in at 1,392 million cubic feet per day and liquids volume averaged 69 thousand barrels per day in the third quarter. These volumes were flat with the second quarter.

In a statement, Heath Deneke, President, CEO and Chairman at SMLP, had the following to offer:

Summit generated $59.8 million of adjusted EBITDA during the third quarter, which was slightly above our expectations in August. Our results improved throughout the third quarter as customers continued to return previously shut-in production to service in large part due to strengthening of natural gas prices. Given that most of the temporary production shut-ins that impacted our financial results in the second and third quarters have been restored or are in the process of being restored, we continue to expect full-year 2020 adjusted EBITDA to be within our $250 million to $260 million guidance range.

We continue to make excellent progress advancing the Double E project while locking in substantial savings relative to the original development budget. Although the project did not receive FERC approval in the third quarter of 2020 as originally anticipated, we were pleased that FERC issued the 7(c) certificate authorizing the project in October. This approval represents a significant milestone for the project and enables us to advance plans to secure third-party financing to fund the vast majority, if not all, of our remaining Double E capital expenditures. We expect to have third-party financing in place concurrent with receipt of FERC’s notice to proceed with construction, which is expected to be obtained in the first quarter of 2021. Given the success we’ve had in locking in capital savings relative to budget, the total estimated cost to complete Double E is now expected to come in under $430 million , gross, which represents an approximate 15% reduction relative to the original capital budget. As a result, SMLP’s 70% share of development capital is now estimated to be approximately $300 million , of which, approximately $175 million remains to be spent as of September 30, 2020 .

Due to the delay in receiving FERC approval on the Double E project and the associated impact to the timing of our third-party financing plans, SMLP now expects to directly fund an incremental $10 million to $20 million of Double E capital in 2020 beyond what was previously assumed in our capital guidance for the year. As a result, we are revising SMLP’s 2020 capital expenditure guidance to $55 million to $65 million .

We also continued to make significant progress on our liability management strategy in the third quarter of 2020, completing and announcing several transactions, consistent with our primary objectives to reduce leverage, simplify the balance sheet and create long-term value for stakeholders across our capital structure. Since closing of the GP Buy-In Transaction in May, including the October 2020 privately negotiated transaction to repurchase $95.6 million of our 2025 senior notes at a substantial discount to par value, we have repurchased a total of $306.5 million face value of our aggregate senior notes and reduced net indebtedness by more than $150 million relative to the end of 2019. Additionally, we exchanged 62,816 Series A Preferred Units for approximately 12.3 million SMLP common units during 3Q 2020, reducing the face value of SMLP’s aggregate Series A Preferred Units by approximately $62.8 million at an implied discount of 84% based on SMLP’s common unit trading price at closing. Furthermore, during the third quarter, we executed a transaction support agreement to retire the $155.2 million SMP Holdings Term Loan through a settlement with the Term Loan lenders. Upon closing of the TL Restructuring, we plan to make a $26.5 million cash payment to SMP Holdings, representing a full settlement of the $180.75 million DPPO, and will release the 34.6 million SMLP common units that were previously pledged as collateral to Term Loan lenders. In exchange, the lenders will forgive the full amount of the $155.2 million Term Loan and the GP interest will be released from the collateral package. The TL Restructuring has garnered the support and consent from 100% of the lenders and is expected to close in the fourth quarter of 2020. Together with the Series A Preferred Equity Exchange, the senior note repurchases and the full settlement of the DPPO, SMLP has eliminated approximately $550.1 million of its fixed capital obligations since closing the GP Buy-In Transaction. These liability management transactions have been highly accretive to SMLP’s equity valuation given the substantial discounts captured and I believe that SMLP is far better situated for long-term success as a result of these initiatives.

This Is Great News

The news released by Summit Midstream Partners this morning proved to be overwhelmingly positive. After all, the company has spent the quarter working on improving its financial position, and has eliminated massive amounts of debt in the process. Moreover, the Double E Project is going to cost millions of dollars less than expected.

Considering the improved financial position and lower-than-expected expense guidance, it’s not surprising to see that investors are so excited about SMLP stock.

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