Golar LNG’s change to how it collects dividends from its master limited partnership spinoff, Golar LNG Partners, won plaudits from analysts who said it will help the parent firm with an upcoming refinancing while the partnership gets more ability to fund dropdown acquisitions.
The change is with regard to Golar LNG’s “incentive distribution rights,” or IDRs. Those IDRs set up a tiered system of increasing payouts to Golar from Golar LNG Partners as the size of the latter’s dividends increased.
In an exchange deal announced earlier today, Golar said it would exchange those old IDRs for a new set of IDRs capped at the current payout level. Golar will also receive 2.9 million common units in Golar LNG Partners, plus additional shares as its general partner.
Golar will also be entitled to additional units in the partnership if the latter achieves higher dividend levels in the coming quarters. Golar said its stake in the partnership is now valued at $470m
Evercore ISI analyst Jonathan Chappell said the “reset” in the IDRs was a “somewhat, but not completely, expected move.” The Oscar Spieler-led parent entity faces $245m in convertible notes coming due in March 2017. The additional units in the Golar partnership could “represent attractive collateral for a commercial bank facility to repay the convert.”
For the Golar partnership, the reset in how dividends are distributed means “a more competitive cost of capital whereby (the Golar partnership) can add assets and cash flow through future dropdowns and the accretion to common unit holders would be meaningfully higher.”
Stifel analyst Ben Nolan said the Golar partnership was paying out some $8.6m annually to Golar through the earlier IDR structure, but that cash will “now remain at the partnership.” The reset is positive for the Golar partnership “making further drop down acquisitions more accretive to earnings and distributable cash flow.”
