Targa Resources ends Q4 with $776 million liquidity, 3.6x leverage

By Paul Deckelman

New York, Feb. 13 - Targa Resources Partners LP ended the 2013 fourth quarter with about $776 million of liquidity between its cash on hand and borrowing availability under its senior secured revolving credit facility.

And despite an increase in its overall debt load due to heavier borrowings under an accounts receivable securitization facility, the Houston-based energy partnership's leverage ratio of debt as a multiple of trailing 12-month adjusted EBITDA came down sequentially and year-over-year to 3.6 times during the quarter, falling to around the middle of its previously announced target range.

The partnership's chief financial officer and senior vice president, Matthew J. Meloy, told analysts on the Thursday conference call following the release of Targa's results for the 2013 fourth quarter and full fiscal year ended Dec. 31 that as of that date, it had $395 million of outstanding borrowings under its $1.2 billion revolver due 2017. After accounting for $86.8 million of outstanding letters of credit, its revolver availability was $718.2 million at year's end. Total liquidity, also including $57.5 million of cash on hand, was $775.7 million.

According to data compiled by the partnership for use on the conference call in conjunction with Meloy's presentation and that of its chief executive officer, Joe Bob Perkins, that fourth-quarter liquidity figure was down a little sequentially from the third quarter ended Sept. 30, when revolver borrowings stood at an even $400 million and there were $50 million in outstanding letters of credit, resulting in $750 million of revolver capacity, and $74.1 million of cash on hand for total liquidity of $824.1 million.

In the year-ago fourth quarter, Targa had drawn $620 million against the revolver, plus $45.3 million of letters of credit, and had $534.7 million of borrowing capacity. Combined with $68 million of available cash, year-ago liquidity stood at $602.7 million.

Leverage declines

At the end of the latest quarter, the company's debt stood at $2.91 billion. Besides the revolver borrowings, Targa had $279.7 million of borrowings under its accounts receivable facility and $2.26 billion of unsecured senior junk bond debt. It had outstanding $250 million of 7 7/8% notes due 2018, $483.6 million of 6 7/8% notes due 2021, $300 million of 6 3/8% notes due 2022, $600 million of 5¼% notes due 2023 and $625 million of 4¼% notes due 2023.

In the third quarter, debt had totaled $2.80 billion - the same amount of bond debt, plus $400 million drawn on the revolver and $168 million borrowed under the accounts receivable facility.

But helped by an increase in adjusted EBITDA to $214.6 million from $155.9 million the previous quarter, the leverage ratio declined to 3.6 times in the fourth quarter from 4.0 times in the third quarter. In the year-ago fourth quarter, when EBITDA came in at $130.6 million, leverage hovered just under the 4.0 times mark.

Meloy noted that "on a debt-compliance basis, which provides us adjusted EBITDA credit for material growth projects that are in process but are not yet complete and makes other adjustments," the year-end leverage ratio of 3.6 times was "near the middle of our stated range of 3.0 to 4.0 times on a compliance basis."

Targa's presentation slides said that its 2014 leverage ratio "will trend toward mid-range as growth projects continue to ramp up."

Elsewhere on the balance sheet, the CFO further noted that early in December, Targa entered into an agreement to increase its accounts receivable securitization facility to $300 million and extend the termination date to December of 2014.

Meloy also said that during the fourth quarter, Targa received gross proceeds of about $142 million from equity issuances under its at-the-market equity program, which allows the partnership to periodically sell equity at prevailing market prices. In 2013, "we were very pleased to raise approximately $525 million of gross proceeds under this program. Subject to market conditions, we believe that we could potentially use the ATM program to meet our equity needs in 2014, while always reserving the ability to utilize other equity offering forms if appropriate."

Just since the beginning of the new year, Meloy said that Targa has raised gross proceeds of $57 million via the at-the-market program, "and we expect to be back in the market in the near future."

Targa Resources Partners' Houston-based parent company, Targa Resources Corp., meanwhile showed $84 million of borrowings outstanding under its $150 million senior secured credit facility as of the end of the fourth quarter and $9 million of cash, resulting in total liquidity of $75 million.

Meloy, who also is the CFO for the parent, said that on Jan. 14, TRC - which owns a large partnership stake in Targa Resources Partners and passes cash that the partnership distributes back to its own shareholders - declared a fourth-quarter cash dividend of 60.75 cents per common share, or $2.43 per common share on an annualized basis, representing about a 35% increase for the full year 2013 versus the full year 2012.

TRC's standalone distributable cash flow for the fourth quarter of 2013 was $27 million, and it declared $26 million in dividends for the quarter.

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