EXCO Resources Juices Shares With MLP Announcement

By Douglas A. McIntyre Published Jul 30, 9:37AM EDT

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EXCO Resources (NYSE:XCO) plans to file a registration statement this quarter for an IPO for essentially all of its market capitalization to from a master limited partnership (MLP). According to the company’s press release, the IPO will issue $1.5 billion worth of common units; its market cap is currently about $1.9 billion. The offering is expected to close in the first quarter of 2008.

XCO says the IPO gives it "the opportunity to enhance valuation of a substantial portion of its mature producing properties" by creating an MLP that will go after additional mature properties, whether owned by XCO or a third party. The funds raised from the IPO will be used "to retire debt associated with the contributed assets" and for working capital. In other words, a payoff to current officers and shareholders.

XCO already issued two flavors of preferred stock worth about $2B in private placements at the end of the first quarter. Once XCO completes the IPO of its MLP, virtually all the value will have been sucked out of the parent and the resulting MLP will be laden with debt.

There has been an identical trend elsewhere and there will almost certainly be more of these IPOs from small E&P companies like XCO, and all will have about the same terms. The value to investors in the MLP lies in the tax status and the rate of return projected by the company. The latter will be all-important in these deals. So far, shareholders are eating this up as "XCO" shares are up over 1% to $17.95, less than $2.00 under the $19.70 all-time high since its IPO in early 2006.

Paul Ausick
July 30, 2007

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.