CVR Partners LP (NYSE:UAN) together with its operations including East Dubuque Nitrogen Fertilizers, LLC and LP, CVR Nitrogen have secured an asset based loan (ABL) facility of $75 million. A group of lenders are backing the credit, with UBS AG acting as collateral and administrative agent in the credit deal.
The main loan that CVR Partners LP (NYSE:UAN) and its subsidiaries have negotiated for is an up to $50 million. However, there is room to make additional borrowing up to $25 million. The additional borrowing is subject to the borrower meeting certain conditions and lenders willing to commit to the funding.
CVR Partners LP (NYSE:UAN) plans to put the ABL credit into a variety of uses including for working capital and capital expenditure.
Dealing with market challenges
CVR Partners’ ABL credit deal comes at a time when the company is struggling with depressed prices of fertilizer. Capacity expansion in fertilizer production industry has greatly impacted fertilizer prices, putting revenues and profits at companies such as CVR Partners at risk.
The oversupply of fertilizer saw urea ammonium nitrate prices shrink nearly 26% in 2Q2016. Ammonia prices eased about 24% in the quarter. Chinese producers have been blamed for the lowering of urea prices as they continue to produce at high levels despite the supply-demand imbalance.
Though CVR Partners hoped that the acquisition of Rentech Nitrogen Partners would generate more economies of scale, subdued commodity prices are denying the company the benefits it hoped for.
The lower nitrogen fertilizer prices are expected to suppress CVR Partners’ margins at least in the short-term.
Besides the price weakness, CVR Partners continues to face heightened competition from rival nitrogen fertilizer producers who are benefiting from the lower prices of natural gas. The gas is a key feedstock for many of CVR Partners’ competitors, thus the company is feeling disadvantaged.
CVR Partners LP (NYSE:UAN) posted an EPS loss of $0.15 on revenue of $119.8 million in 2Q2016. The revenue figure rose more than 48% YoY and beat the consensus estimate by $6.12 million.