HCLP Walloped From “Secondary” Offering

Hi-Crush Partners LP is down 3.5% this morning on an announcement of a secondary offering. However, the title “secondary offering” is largely formality, as this sale is not anything like a traditional secondary.

The shares are not new issuance, but rather come from a controlled group arrangement with another sibling/parent entity, Hi-Crush Proppants LLC. Since Hi-Crush Proppants LLC was already entitled to a share of all earnings anyway, this secondary will not be changing the outstanding dynamics of HCLP.

Unfortunately, that also means that HCLP will receive no funding from this offering directly, and it does not benefit my partnership units in any way, shape or form. I generally feel that concerns over new capital raises in fast growing or leveraged markets are overblown, so I would not have been bothered much to see HCLP raise more money.

This announcement should be treated as merely a declaration of a very large seller coming to market. There is no ownership dilution taking place, though nor are their any benefits to existing partners in the form of expanded business capital.

There’s a good chance I’ll be putting money to work in HCLP on the selloff. This is an excellent opportunity to get in.