CVR Finally Goes To Market

With the economy improving, markets roaring and volatility seemingly subsiding, companies are no longer afraid of approaching the capital markets. As a result, previously shelved spinoffs are now resurfacing. The latest is this week’s IPO of CVR Partners, the nitrogen fertilizer MLP subsidiary of CVR Energy (CVI).

The IPO idea was first floated in 2008, but market conditions weren’t favorable, however CVI announced that CVR Partners filed its S-1 in December 2010 (document can be found here). The IPO was initially expected to raise $200m, but the company increased the offering by $50m due to high demand. The hefty investor appetite is not so surprising given the expected yield of over 14%, this during a period when investors are hungry for any type of yield – there is a reason why MLPs have done so well recently (ok, probably more than one reason). CVI’s performance hasn’t been too shabby either, having surged over 160% over the past 12 months, much more than some of its competitors like Potash (POT) or Agrium (AGU).

A brief profile of the IPO can be found here and a more detailed writeup here. The proceeds of the IPO will go to several different areas including a special distribution and a plant expansion. The company had some issues with an explosion last year which disrupted its operations and some degree of event risk will always remain. CVI will still control over 70% of the company post-IPO. It is worth noting that Goldman Sachs (GS) controls over 30% of CVR Energy (and a few board seats) and not surprisingly is bullish on the company, adding them to its conviction list this past January. The rationale behind the bullishness is the expected improvement in cyclical margin businesses (like CVR Partner’s) and the company’s exposure to the fertilizer market. Goldman’s ownership poses another risk though, as the public unit holders will effectively be minority shareholders in the new company and could be adversely affected by the majority’s decisions. Executive ownership details can be found in the S-1, but CEO John Lipinski was apparently interested in buying $3m worth of shares during the offering. The IPO is expected this Friday (4/08/11) and CVR Partners will trade under the ticker ‘UAN’.

Disclosure: Author holds no shares in any company mentioned.

3 thoughts on “CVR Finally Goes To Market

  1. Spindoctor

    The IPO is here and UAN priced higher than expected at $16. Even so, the name has jumped over 10% and is currently trading over $17.50. It seems that investors were pretty excited about this one. The IPO docket was light this week with only a couple of offerings, but there are some things to like about the company.

  2. Anonymous

    I’m curious why the spinoff is structured as a MLP instead of plain old C-corp. Any ideas on that?

  3. Spindoctor

    I believe one of the advantages of an MLP is its tax treatment. 

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