Crestwood finances get more attention

DEC. 7, 2015--The Houston-based parent company of U.S. Salt LLC in Schuyler County has suffered a series of financial setbacks in recent weeks.
Since Crestwood Equity Partners LP reported a third quarter net loss of $623.4 million Nov. 3, investors have sliced in half both its share price and its total market value. Last week, Crestwood shares -- ticker symbol CEQP on the New York Stock Exchange -- tumbled 29 percent.
That collapse followed a reverse stock split Nov. 24, which provided investors with one CEQP share for every 10 they had held. Adjusting for that stock split, Crestwood's shares have declined by more than 80 percent since January.
In response to the intense selling pressure, Crestwood management announced early Monday, Dec. 7 that it would immediately begin buying up to $100 million in CEQP shares on the open market. The company said it would be assisted in the purchase program by its largest shareholder, the Connecticut private equity firm First Reserve.
"The current market environment has created a large disconnect between CEQP's market value and the fundamental value of our diversified portfolio of strong cash-flow-producing assets," Robert G. Phillips, Crestwood's chairman and CEO said Monday.
The share purchase announcement accomplished its goal of halting the stock's steep five-day skid. On Monday, CEQP shares rose 3.49 percent to close at $14.53 on a day with trading volume five times normal.
But the company isn't necessarily out of the woods. Late last month, Moody's Investor Services cut its outlook to "negative" on $2.2 billion of debt for the Crestwood family of companies. That includes long-term bonds and bank credit lines.
Crestwood's overall rating from Moody's, one of the world's three dominant credit rating agencies, is characterized as "speculative and subject to substantial credit risk." An announcement of a "negative" outlook often -- though not always -- presages a ratings downgrade.
It's unclear whether Crestwood's financial woes will affect future employment at U.S. Salt or its controversial plan to use abandoned salt caverns at the site to store liquid propane and butane.
Crestwood employs about 130 workers at its U.S. Salt operation on the shore of Seneca Lake in Reading.
The plant is capable of producing up to 400,000 tons of salt a year for food, industrial and pharmaceutical uses. However, Crestwood said production slipped somewhat last year after it lost a major customer it does not expect to replace.
Separately from its ownership of U.S. Salt, Crestwood has proposed storing liquid petroleum gases, or LPG, in unlined caverns created by salt mining.
Crestwood's application for a state permit to store LPG was filed in October 2009. The state Department of Environmental Conservation is still weighing the pros and cons of the project. An administrative law judge at the DEC is evaluating whether the application requires formal adjudication.
Project opponents have argued that it poses grave safety risks and that it would undermine the Finger Lakes' booming wine and tourism economy by further industrializing the shores of Seneca Lake. Crestwood has denied those points.
The Schuyler County Legislature, in a rancorous split vote last year, endorsed the LPG project, while the village of Watkins Glen trustees later voted to oppose it. The town of Reading has said the decision should be left to the DEC. More than two dozen Finger Lakes municipalities have voted to oppose the project.
Last fall the DEC issued a draft LPG storage permit that required Crestwood to "indemnify and save harmless the state from suits, actions, damages and costs of every nature and description."
But Joseph Campbell, co-founder of Gas Free Seneca, a group formed to halt the LPG project, said companies in financial straights "will cut corners. Cutting corners leads to the greater likelihood of an accident. In the event of an accident ... we, the taxpayers, would be left cleaning up their mess."
In recent days, the Business Council of New York and a member of the United Steel Workers union, which represents nearly 100 U.S. Salt employees, have voiced strong support for the LPG project.
On Nov. 20, the Albany-based Business Council, which effectively serves as the state's Chamber of Commerce, endorsed the LPG project in a letter to Gov. Andrew Cuomo. It said the LPG facility would create 58 construction jobs and 17 permanent jobs -- higher numbers than the company has typically estimated in official filings.
The letter to the governor also said the storage facility would "help end the local LPG supply gap that has plagued New York customers during seven of the last 10 winters."
Gas Free Seneca has countered that none of the LPG stored in Schuyler County would be used locally; rather it would be shipped east by rail and pipeline for use in New England.
Connecticut-based First Reserve's role in Monday's share purchase announcement comes a month after the private equity firm entered into a $500 million joint venture with Crestwood to develop a new pipeline system in Texas.
Crestwood said First Reserve's willingness to make 100 percent of the initial investment in the project demonstrated its commitment to Crestwood's future.