CorEnergy Closes Sale of MoGas and Omega Pipeline Systems to Spire
- Sale of MoGas and Omega pipeline systems for $175 million
- Net proceeds of approximately $165 million after taxes and transaction-related costs
- Significant de-leveraging of the balance sheet
- Out of compliance with the NYSE minimum share price requirement
- At risk of delisting from NYSE
- Cash flow deficits in Crimson utility due to underpriced pipeline tariffs
Insights
The divestiture of the MoGas and Omega pipeline systems by CorEnergy to Spire Midstream for $175 million represents a strategic move to streamline operations and improve the company's financial health. This all-cash transaction, resulting in net proceeds of approximately $165 million, enables CorEnergy to repay significant debt, specifically the $109 million Crimson Pipeline credit facility, thereby reducing leverage on its balance sheet. This development is crucial for stakeholders as it directly affects the company's financial stability and debt profile.
However, the context of this transaction is critical. CorEnergy's mention of non-compliance with the NYSE minimum share price requirement and the risk of delisting poses a significant threat to investor confidence. Delisting can often result in reduced liquidity and investor interest, potentially leading to a decline in share price. The obligation to repurchase $118 million of convertible senior notes, should the delisting occur, is a material financial risk, given the company's admission of insufficient resources to meet this obligation.
Furthermore, the sale's proceeds are earmarked for maintaining liquidity and operations at the Crimson utility, which is facing cash flow deficits. The expectation of retroactive rate increases is a positive note, but this is contingent upon regulatory approval, introducing an element of uncertainty into the company's revenue projections.
The transaction between CorEnergy and Spire Midstream has significant implications within the energy infrastructure sector. The MoGas System is a critical asset for natural gas transmission and distribution in Missouri and Illinois and its acquisition by Spire Midstream could enhance Spire's market position and service capabilities in these regions.
The mention of corporate cost reductions and potential asset write-downs by CorEnergy reflects broader industry challenges, such as regulatory changes and volume declines. Major oil production companies have faced similar issues, leading to write-downs of reserves, particularly in California. This indicates a trend of energy companies adjusting to a changing regulatory landscape and market conditions, which could affect asset valuations and long-term profitability.
For CorEnergy, the potential write-downs of pipeline assets due to shorter economic lives imply a re-evaluation of asset performance and future revenue streams. This could lead to adjustments in the company's strategic planning and capital allocation. Investors and industry stakeholders should monitor these developments closely, as they could signal shifts in the market dynamics and competitive positioning within the sector.
The legal implications of CorEnergy's transaction and its current financial condition are multifaceted. Firstly, the sale of the MoGas and Omega systems and the repayment of the Crimson Pipeline credit facility likely required complex legal negotiations and due diligence, underscoring the importance of effective legal counsel in such transactions, as provided by K&L Gates.
Secondly, the potential NYSE delisting and subsequent repurchase of convertible senior notes highlight the intersection of corporate finance and securities law. The company's current capital structure evaluation and its strategic alternatives could involve legal considerations related to corporate restructuring, debt refinancing, or even bankruptcy proceedings, should they be unable to remedy their financial non-compliance.
Lastly, the regulatory aspect of the utility rate increases sought by CorEnergy introduces legal complexity, as these increases are subject to approval by regulatory bodies. The outcome of these proceedings will have a direct impact on the company's cash flow and financial projections. Additionally, the retroactivity of the rate increases, if granted, will have legal precedents and could influence future regulatory requests by other utilities.
Provides Update on Financial Condition
Transaction Highlights
-
All-cash transaction for
$175 million $165 million -
At closing, CorEnergy repaid and canceled the Crimson Pipeline credit facility, for a total of
$109 million - Transaction results in Crimson Pipeline as sole remaining operation of CorEnergy
Dave Schulte, Chairman and Chief Executive Officer of CorEnergy, said: “We want to thank our dedicated MoGas and Omega associates, who will continue supporting Spire to provide safe transportation of critical supplies of natural gas to customers in
Commenting on CorEnergy’s financial condition, President and CFO Robert Waldron said: “The sale of our MoGas and Omega systems allows us to significantly de-lever our balance sheet. However, as we have previously disclosed, we are currently out of compliance with the NYSE minimum share price requirement and are at risk of the NYSE delisting our common stock. While we are appealing the delisting notice, there is no assurance that we will be successful. If this situation is not remedied, it will lead to an obligation to repurchase
Regarding corporate operations, Mr.
Mr.
CorEnergy intends to file pro forma financial statements giving effect to the sale of MoGas and Omega on Form 8-K.
Evercore acted as the company’s financial advisor while K&L Gates served as legal counsel.
About CorEnergy Infrastructure Trust, Inc.
CorEnergy Infrastructure Trust, Inc. (OTC: CORR, CORRL) is a real estate investment trust that owns and operates regulated crude oil pipelines and associated rights-of-way. For more information, please visit corenergy.reit.
Forward-Looking Statements
With the exception of historical information, certain statements contained in this press release may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, our ability to execute on our business strategy of restoring our cost of services and the expected results of tariff increase requests. Although CorEnergy believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties and these expectations may prove to be incorrect. Actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including that we might not receive our requested tariff increases, we might have further cost increases and volume reductions beyond those projected in our tariff requests and those additional factors discussed in CorEnergy’s reports that are filed with the Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Other than as required by law, CorEnergy does not assume a duty to update any forward-looking statement.
Source: CorEnergy Infrastructure Trust, Inc.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240119912512/en/
CorEnergy Infrastructure Trust, Inc.
Investor Relations
Jeff Teeven or Matt Kreps
info@corenergy.reit
Source: CorEnergy Infrastructure Trust, Inc.
FAQ
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