MIC brainstorms ways to use ‘excess cash’

The Macquarie Infrastructure Company predicts it will have up to $40m of cash on its books by year’s end. CEO James Hooke said the company may use the money to pre-pay some of its debt or buy back shares, though he has not yet made up his mind on either course of action.

The Macquarie Infrastructure Company is contemplating what it should do with up to $40 million of excess cash it will soon have on its books, chief executive James Hooke told analysts during a conference call.

The firm expects to have between $30 million to $40 million of excess cash available by year’s end, given its current cash reserves and expected cash distributions from its businesses, Hooke said.

The presence of the excess cash, or money that is free to be used for return to shareholders, marks a remarkable turnaround for a firm which, just last year, halted its dividends in an effort to pare down debt. The cash is there, Hooke said, because the economy is improving, demand for its portfolio companies’ “essential services” is rising, costs are lower and prices are higher.

Hooke said Macquarie Infrastructure Company (MIC) will pursue a “two-part strategy” in deciding what to do with the cash. MIC will talk with its lenders to see if it can pre-pay any of its long-term debt.

“But only if we can do so on favourable terms,” Hooke said.

Secondly, MIC will “explore alternatives” to return the excess cash to shareholders via a share repurchase program. This is where a company uses its cash to buy its own share, causing the share price to nudge upward.

“We believe our shares are undervalued,” Hooke said, and a share buyback programme would “create value for shareholders”.

Thus far, Hooke has not made up his mind.

“I have no preconceived view as to which of the options available to us will be the best,” he said. Part of the uncertainty stems from the fact that “until I sit down with the lenders and have a discussion, I’m not going to know what they’re prepared to offer up,” Hooke said.

MIC has approximately $1.7 billion of debt across its operating businesses.

The Macquarie Group-managed investor owns a portfolio of North American infrastructure assets, including a network of aircraft maintenance stations, bulk liquid storage terminals located in US and Canada, a Hawaiian gas distribution company, and a Chicago-based cooling and heating company.

The bulk liquid storage business, called IMTT, has been particularly good at bringing in cash to MIC’s coffers. The company owns Oil Mop, a subsidiary which provides oil cleanup services. Since May, the company has been busy helping clean up the oil spill in the Gulf of Mexico and contributed an additional $26 million in profit towards MIC’s second quarter bottom line.

Overall, MIC reported an increase in cash flow of 68 percent from the same period a year ago. The company reported cash flow of $22.8 million in the second quarter of 2009 and $38.3 million in the second quarter of this year.

Compared to the first quarter of this year, though, the increase was only 4.4 percent. The firm reported cash flow if $36.7 million in the first quarter.

As of press time, MIC shares stood at $14.30, down 3.5 percent on the day’s trading.