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Citigroup Assumes Buy Coverage On Plains All American LP, Positive Outlook On Co Deleveraging

With deleveraging underway, a number of issues are likely to be resolved at both Plains All American Pipeline, L.P. PAA 1.29% and Plains GP Holdings LP PAGP 0.76%, Citigroup’s Faisel Khan said in a report. He resumed coverage of both with Buy ratings. The price target for Plains All American Pipeline has been raised to $33.50 and that for Plains GP Holdings is at $12.50.

The issues solved by the simplification transaction includes leverage, structure and corporate governance, analyst Khan mentioned. He expects the partnership to trade in-line with “some of its peers.”

Deleveraging Underway

The transaction is “largely leverage neutral,” Khan commented. Plains All American Pipeline would be taking over ~$600 million of additional debt from Plains GP Holdings, and this would be largely offset by ~$250 million of projected equity offering in 4Q16 and ~$300 million less in annual distributions.

“However, a modest use of the ATM program next year combined with growing cash flows from projects under execution should allow management to address leverage over time. We believe the risk to PAA’s investment grade rating has been materially reduced,” the analyst stated.

Well Positioned

Plains All American Pipeline appears to be well positioned, given its robust asset base which also offers “attractive organic growth opportunities as the US domestic crude production grows over the long term.”

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DateFirmActionFromTo
Aug 2016CitigroupMaintainsBuy
Aug 2016CitigroupAssumesBuy
Aug 2016Goldman SachsUpgradesSellNeutral

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