Buckeye Acquires Stake in BORCO - Analyst Blog

Buckeye Partners L.P. (BPL) has agreed to buy an 80% interest in Bahamas Oil Refining Company International (BORCO), the largest petroleum products storage terminal in the Caribbean, from First Reserve Corporation for $1.36 billion.

Located only 80 miles from the Florida coast, BORCO is the fourth largest oil and petroleum products storage terminal in the world. The facility has a storage capacity of 21.6 million barrels. A premier marine storage facility, BORCO expects to generate Adjusted EBITDA of $138 million in 2011 on a 100% basis.

Buckeye sees the acquisition as a perfect fit for its core business given BORCO's world-class customer base. The acquisition will significantly expand Buckeye's market reach with the addition of a global logistics hub to its asset portfolio.

Buckeye plans to finance the acquisition through a combination of equity and debt. Under the deal, Buckeye plans to issue about 4.38 million limited partner (L.P.) units of a new class of interests (Class B) at $57.04 each to First Reserve, for proceeds of $250 million. Additionally, First Reserve will also receive about 2.5 million Buckeye L.P. units at $60.40 each, for proceeds of $150 million.

Apart from this, Buckeye will raise about $425 million by selling limited partner units to institutional investors. The partnership has also been assured of a bridge facility of $775 million from Barclays Bank (BCS) and SunTrust Bank (STI).

Buckeye expects the acquisition to add 10% to its distributable cash flow per limited partner unit immediately on closing. The deal is expected to close in the first quarter of 2011.

Going forward, Buckeye plans to spend roughly $400 million at the facility over the next two to three years, adding about 7.5 million barrels of flexible petroleum products storage and increasing the total storage capacity to more than 29 million barrels.

The partnership expects this to bring in about $70-80 million of incremental Adjusted EBITDA every year. Buckeye also sees the scope to install additional 13 million barrels of storage capacity at the site, due to the availability of a large portion of unused land.

Royal Vopak, which is based in the Netherlands, owns the remaining 20% in Bahamas Oil Refining. The company has the right to sell its interest in BORCO to Buckeye on similar terms as agreed with First Reserve. Buckeye is prepared to purchase the remaining stake in BORCO if Vopak decides to sell its interest in the facility.

Buckeye Partners L.P. is a publicly traded partnership that owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered. The partnership's pipeline system stretches across 5,400 miles with about 69 refined petroleum products terminals. It also operates about 2,400 miles of pipeline under agreements with major oil and chemical companies and owns a natural gas storage facility in northern California.

Buckeye currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock. The partnership is favorably positioned versus its closest peer Ferrellgas Partners L.P. (FGP) with a Zacks #4 Rank (Sell), based on short-term ratings.

 
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