Kinetik Executes New Accounts Receivable Securitization Facility
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Insights
The establishment of a $150 million accounts receivable securitization facility by a subsidiary of Kinetik Holdings Inc. represents a strategic financial maneuver to optimize the company's capital structure. By electing to use the proceeds to repay existing debt, specifically a portion of the Term Loan, Kinetik is effectively reducing its interest expense and improving its liquidity position. The interest rate tied to the one-month term SOFR plus 90 basis points indicates a competitive cost of capital, likely reflecting the company's creditworthiness and the current interest rate environment.
From a financial perspective, this move could signal to investors Kinetik's proactive approach to debt management. By extending the maturity of the Term Loan to December 2026, the company is alleviating short-term liquidity pressure, which may enhance its financial flexibility and potentially improve its credit ratings. However, stakeholders should monitor the company's ability to manage the fluctuating borrowing base, which is contingent on the value of the company's accounts receivable balance.
The introduction of the A/R Facility by Kinetik Holdings Inc. is indicative of the company's approach to leveraging its accounts receivable as a financial asset. This strategy can be advantageous in freeing up capital that is otherwise tied up in the business cycle. However, it introduces a dependency on the company's operational performance, specifically its ability to efficiently manage its receivables.
As receivables serve as collateral, their valuation and the company's capacity to collect them in a timely manner will be important in maintaining the borrowing base. Investors should consider the credit quality of Kinetik's customers and the industry's economic outlook, as these factors could impact the company's future cash flows and, consequently, its ability to service its debt obligations. The facility's maturity in April 2025 with a renewal mechanism offers some cushion, but also necessitates ongoing scrutiny of the company's credit management practices.
Kinetik Holdings Inc.'s decision to secure an accounts receivable securitization facility is a notable event in the debt markets. It reflects a trend where companies are seeking alternative liquidity solutions beyond traditional loans or credit lines. This facility's structure, tied to the one-month term SOFR rate, reflects a shift in the lending market towards using SOFR as a benchmark following the phase-out of LIBOR.
The relatively low spread of 90 basis points above the benchmark rate suggests that the debt market perceives Kinetik as a lower-risk borrower. However, investors should be aware that the SOFR rate is subject to changes based on Federal Reserve policies and economic conditions. Any significant fluctuations in interest rates could affect the cost of borrowing for Kinetik, which in turn could influence the company's net interest margins and overall profitability.
Kinetik intends to use the net proceeds from the A/R Facility to repay a portion of the outstanding borrowings under its existing Term Loan Credit Facility (“Term Loan”), lowering the remaining balance to
About Kinetik Holdings Inc.
Kinetik is a fully integrated, pure-play, Permian-to-Gulf Coast midstream C-corporation operating in the
Forward-looking statements
This news release includes certain statements that may constitute “forward-looking statements” for purposes of the federal securities laws. Forward-looking statements include, but are not limited to, statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “seeks,” “possible,” “potential,” “predict,” “project,” “prospects,” “guidance,” “outlook,” “should,” “would,” “will,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements include, but are not limited to, statements regarding the Offering. While forward-looking statements are based on assumptions and analyses made by us that we believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties which could cause our actual results, performance, and financial condition to differ materially from our expectations. See Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023. Any forward-looking statement made by us in this news release speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future development, or otherwise, except as may be required by law.
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Kinetik Investors:
(713) 487-4832 Maddie Wagner
(713) 574-4743 Alex Durkee
Source: Kinetik Holdings Inc.
FAQ
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