Emerge Energy Services LP (NYSE: EMES) is in the process of raising additional capital through the sale of securities in a private arrangement. The company also decided to monetize its Fuel business, unlocking $178.5 million in the process. What do these measures mean for Emerge’s and its shareholders?
If you listen to the management of Emerge Energy Services LP (NYSE: EMES), what they are after is strengthening Emerge’s balance sheet and improving liquidity in the company. As such, the company’s chairman, Ted W. Beneski, said that in addition to the securities fundraiser and the divestiture of Fuel business, they have also decided to hold cash distribution to unit holders for the three months to June 30.
What’s happening on the securities fundraiser front?
Emerge Energy Services LP (NYSE: EMES) has entered into an agreement with an institutional investor who will purchase $20 million worth of the company’s preferred units of the Series A type. Those preferred units will convert into about 1.97 million common units of Emerge upon certain events or at the option of the holder.
In addition to the preferred units, Emerge is also offering the investor warrants to purchase about 0.89 million of its common units at a price of $10.82 apiece.
What about divesture of Fuel operations?
Emerge Energy Services LP (NYSE: EMES) is set to unlock $178.5 million from the divestiture of its Fuel segment. The company sold the Fuel unit to an entity called Sunoco. The transaction is expected to close later this year.
Impact on Emerge Energy Services LP (NYSE: EMES)’s balance sheet
Regarding the sale of the fuel segment, besides the direct benefit of the proceeds from the transaction, the deal also allows Emerge to drop some operating costs. That should allow the company to save more money that it can distribute to shareholders on an ongoing basis.
As of the issue of the securities fundraiser, Emerge Energy Services LP (NYSE: EMES) said it intends to use the funds to reduce its indebtedness and for other programs.
The bottom-line is that Emerge hopes that simplifying its structure through the divestiture of the Fuel business and the sale of securities will enable it to drop some burdens and reduce the leverage on its balance sheet so that investors in the company can enjoy long-term benefits going forward.