MIC ahead of schedule on debt reduction

Macquarie Infrastructure Company shares rallied 16% after the NYSE-listed infrastructure investor announced it will repay $66m of its debt a year earlier than previously disclosed. Management also said during the firm’s second quarter earnings call they have no plans to sever ties with their external manager, Macquarie Group.

Management of Macquarie Infrastructure Company (MIC) today reported they will repay their $66 million holding company-level debt facility a year earlier than expected, touching off a mid-morning rally in MIC shares that topped 16 percent.
MIC shares stood at $4.60 at press time.

Overall revenues for the second quarter were down 37 percent to $180.8 million, versus the second quarter 2008. This amount was below the $187.5 million consensus revenues estimated by analysts for the second quarter. But the firm also posted cash available before debt reduction, a measure of its core cashflows from operations, of $31.2 million, or about $.69 cents per share – well ahead of analyst expectations.

MIC chief executive officer James Hooke said the firm now has a total of $17 million of cash that can be used toward MIC’s holding company-level debt, which he expects to be able to refinance in March 2010 and repay completely by the end of next year.

MIC, which in March suspended its dividend to accelerate debt repayment, had previously indicated it would need until the end of 2011 to repay the $66 million holding company-level debt facility.

Hooke said the firm’s bulk storage business, which posted a nearly 10 percent boost in revenues thanks to rental rate and capacity increases, was performing particularly well. He said the business, in which MIC has a 50 percent equity stake, may have sufficient capital to undertake additional growth projects or to make distributions in the future.

MIC’s airport services business – a portfolio of 72 aircraft fueling stations across the US – posted a 42.6 percent decrease in revenues but has been able to make continuing pre-payments toward its $833 million debt facility.

A third business, a portfolio of airport parking garages that is nearing default on its debt obligations, is in the midst of a sale process, Hooke said.

“Should we find a buyer for that business, it is still possible that the business will be put through a pre-packaged bankruptcy,” Hooke said. “Given the process and the level of interest being shown, we believe we will have a resolution before the end of the year,” he added.

Hooke also took time to dispel speculation that MIC may be considering severing ties with its external manager, Sydney-based Macquarie Group. Speculation that it may do so has risen after another Macquarie-managed fund, Macquarie Airports, recently brought forth a proposal to internalise its management.

“There is no active discussion about the internalisation of MIC,” Hooke said. He added that internalisation “would result in increased cost to MIC shareholders” and does not make sense.

Hooke also said Macquarie Group plans to reinvest its management fees in MIC shares, which will lead to an issuance of 215,000 additional MIC shares and take Macquarie’s holding in MIC from 7.1 percent to 7.5 percent.

The reinvestment will come at a time when MIC’s New York Stock Exchange-listed shares are enjoying a steep rebound from their early-March low of $.78 cents a share. Since then, its shares are up nearly 500 percent but are still down about 80 percent from their level a year ago.