Keeping It Simple

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NS

Distribution Reset

Additionally, on February 8, 2018, and in anticipation of the merger, the Partnership announced that management of the Partnership anticipated recommending to the Partnership’s board of directors, and the board of directors expects to adopt, a reset of its quarterly distribution per common unit to $0.60 ($2.40 on an annualized basis), starting with the first-quarter distribution payable in May 2018. After giving effect to the issuance of Partnership common units in connection with the merger, this distribution reset is anticipated to reduce annual distribution outflow by approximately $200 million per year.

“A fundamental shift has occurred in the makeup of the investor base for MLPs, which has tightened MLP equity markets and access to equity to finance important capital projects needed to grow and increase long-term unitholder value,” said Barron. “In addition to the difficulty in the MLP sector, NuStar’s base business was significantly impacted last year from the combination of a series of destructive hurricanes, unexpected turnarounds at our customers’ refineries and a large, unanticipated reliability project on our ammonia line. And recently, with the widely reported economic strife in Venezuela and the mounting financial and operational challenges facing our St. Eustatius terminal anchor tenant, PDVSA, in an abundance of caution, we have adjusted our forecast on their utilization of the terminal this year, which significantly lowered our earnings projections.

“Simultaneously, we have witnessed a paradigm shift in market sentiment away from strong growth fueled by continuous equity issuances to a market sentiment that favors strong distribution coverage and rewards MLPs for low leverage, less dependency on the equity markets, and increased self-funding of capital projects. So given the headwinds in our base business, and the changed market sentiment, we buckled down and put together an actionable plan, just as we did in 2014 when the dramatic plunge in crude prices reverberated throughout the energy industry,” said Barron. “We undertook a thorough, systematic analysis of our best path forward, taking into account the new MLP market priorities and limitations and our current strengths and challenges.

“As we carefully considered all the alternatives, in every scenario, a distribution reset was a necessary part of the overall prescription to position us for the future,” said Barron. “Resetting NuStar Energy’s distribution will improve our coverage ratio immediately, and in the longer term, the reset will also serve to reduce both our leverage and our future needs to access the capital markets.