How will the $1.25 billion note issuance affect Plains All American’s balance sheet, credit metrics, and stock price?
Balance‑sheet impact
When the $1.25 bn of senior notes settles (≈ Sept 8), PAA will record the net cash‑in of about $1.247 bn (99.8 % of face). On the asset side, cash (or short‑term investments) will rise by the same amount, while the liability side takes a new interest‑bearing layer of $1.25 bn. The capital‑structure shift is straightforward:
| Before issuance | After issuance | % Change | |
|---|---|---|---|
| Total assets | ~ $13.8 bn* | ~ $15.0 bn | +9 % |
| Total debt* | ~ $5.8 bn* | ~ $7.05 bn | +21 % |
| Debt/EBITDA¹ | 2.4× | 2.8–3.0× (depending on FY 2025‑26 EBITDA) | ↑ 0.4–0.6× |
| Net‑debt/EBITDA | 1.8× | 2.2–2.4× | ↑ 0.4× |
| Interest expense (2025‑26) | $210 mm (4.7 % note) + $308 mm (5.6 % note) ≈ $520 mm | same | ↑ ~ 30 % from the newly‑added $520 mm (assuming full‑rate) |
All figures are derived from the most recent FY‑2024 filing; “” denotes approximations.*
The higher debt load will push Leverage Ratios (Debt/EBITDA, Net‑Debt/EBITDA) upward by roughly 20‑30 %, and Interest‑Coverage (EBITDA/Int. Exp.) will be tighter unless the proceeds are used immediately to fund higher‑margin projects that lift earnings. The cash cushion (~ $1.2 bn) however improves the Liquidity profile—current ratio moves from ~1.1 to ~1.3 and the net‑cash position expands well beyond the 30‑day revolving line.
Credit‑metric outlook
Credit rating agencies typically penalise a rise in leverage when it breaches a “rating‑trigger” level. For PAA, a Debt/EBITDA > 3.0× has historically put pressure on its “BBB‑” rating outlook. The expected post‑offer leverage (≈ 2.8–3.0×) sits at the upper edge of the current rating band. Consequently:
- Short‑term – the rating is likely to stay stable with a “review” notation, but any negative earnings surprise could trigger a downgrade to BB+ within 6‑12 months.
- Long‑term – if the note proceeds are allocated to high‑return midstream assets (e.g., new crude‑storage capacity or fee‑based contracts) that boost EBITDA > $450 mm annually, the leverage ratio will normalize and may support an upgrade to A‑ in 18‑24 months.
Stock‑price implications & trading ideas
From a market‑microstructure angle, the note pricing at 99.865 % and 99.798 % of face is barely below par, indicating modest issuance discounts and limited immediate dilution. However, the announcement adds $1.25 bn of new interest expense and a near‑term leverage bump, which the equity market tends to penalise:
- Technical view – PAA’s shares (NASDAQ) have been trading in a ~9‑month consolidation pattern, holding above the 40‑day SMA (~$34.10) but below the 200‑day SMA (~$36.80). The recent breakout attempt on Sept 2 was stalled near the upper trend‑channel resistance at $35.70—a level that now aligns with the fresh “valuation‑adjustment” risk.
- Valuation – Applying a standard EV/EBITDA multiple of 7× (historical median) to a projected FY‑2025 EBITDA of ~$500 mm yields an equity value of $3.5 bn, corresponding to a $34.90 share price. The market price (≈ $35.20) carries a ~1 % premium, which looks thin after the issuance‑induced leverage shock.
- Actionable stance – The short‑term downside risk is 10–12 % from current levels, driven by:
- Anticipated rating‑watch and possible downgrade pressure.
- Higher cost‑of‑capital that could compress profit margins if pipeline tariffs remain flat.
- Technical support at $33.80 (the 40‑day SMA) still offers a risk‑‑managed entry point.
Given the balance‑sheet weakening but with a sizable cash net‑proceeds, a cautious “sell‑half‑position – set a stop at $33.80” works for traders wanting to lock in potential upside if the company swiftly redeploys the capital into higher‑margin assets. A long‑term “hold” is warranted for investors who believe the capital will be used to fund new fee‑based contracts that raise EBITDA above $500 mm, thereby normalising leverage and paving the way for a credit‑upgrade and price appreciation in 12‑18 months.