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| Discussion Materials December 18, 2008 |
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| Table of Contents I. Situational Analysis II. Strategic Alternatives Wachovia Securities is the trade name for the corporate and investment banking services of Wachovia Corporation and its subsidiaries. Debt and equity underwriting, trading, research and sales, loan syndications agent services, and corporate finance and M&A advisory services are offered by Wachovia Capital Markets, LLC, member FINRA, NYSE and SIPC. Mezzanine capital, private equity, municipal securities trading and sales, cash management, credit, international, leasing and risk management products and services are offered by various non-broker dealer subsidiaries of Wachovia Corporation. Project Double Barrel 2 |
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| Strategic Alternatives in Perspective Strategic Alternatives Status Quo Renegotiate Existing Credit Agreement Eliminate Growth Compliant with debt covenants? NoCapital Expenditures Use Asset Sale Proceeds to Repay Debt YesReduce Current Compliant with debtDistribution per covenants? NoIssue Convertible Unit Security to Repay Debt Yes Compliant with debt No covenants?Issue New Equity to Repay Debt YesMaximizes unitholder value? Merger Yes Yes YesRestructure / Go Private Project Double Barrel 3 |
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| Strategic Alternatives Summary Description Highlights Considerations Maintain current status without any Recovery/compliance dependent on Covenant problem requires pursuing a changes to operations, organizational sharp increase in near term commodity strategic solution.Status Quostructure or capital structure. price. Likely no access to capital markets. Small market cap exacerbates risk.Renegotiate Restructure current credit agreement to Preserves asset base and future upside. Potential for bank group defections. provide temporary covenant relief. Minimizes investor dilution. Size of covenant problem.Existing Credit Likely onerous terms.Agreement Partially monetize existing assets and Provides proceeds relatively near term Highest quality assets would need to be sold.Use Asset Saleuse net proceeds to repay debt. to repay bank debt. Limited universe of buyers.Proceeds to Repay Negative impact on revolver availability reduces benefits.Debt Remaining entity too small to remain public.Issue Convertible Delever through the issuance of Strengthens balance sheet. Significant execution risk. convertible security. Proceeds used to Preserves independence. Equity dilution.Security to Repayrepay bank debt. Unitholder approval needed.Debt Apply net proceeds from common Strengthens balance sheet. Significant execution risk and dilution to equity issuance to existing debt in Preserves independence. existing unitholders.Issue New Equity order to comply with debt covenants. Permanently impairs the value of HPGP’sto Repay Debtsub units and IDRs. Unitholder approval needed. Combine with peer to extract synergies Preserves equity holder participation in Loss of control.Mergerand potentially alleviate credit future recovery. Limited universe of partners. concerns. Diversification. Cease to be publicly traded entity. Avoids downside risk to unitholders Reputational risk if not perceived correctly. associated with other alternatives. Litigation risk if not valued fairly.Restructure / Provides immediate liquidity to equity Additional equity investments needed.Go Privateholders. May be easier to grow as private company. Project Double Barrel 4 |
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| Situational Analysis Project Double Barrel 5 |
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| 1-Year Price Performance – HLND and HPGP 1/25/08 – HLND and HPGP 3/19/08 – HLND and HPGP 7/25/08 – HLND and HPGP 10/24/08 – HLND and increase distributions to announce resignation of increase distributions to HPGP increase distributions $0.7950 from $0.7550 and CFO Ken Maples 4/25/08 – HLND and HPGP $0.8625 from $0.8275 and to $0.8800 from $ 0.8625 $0.2550 from $0.2300, increase distributions to $0.3050 from $0.2800, and $0.3175 from respectively $0.8275 from $0.7950 and respectively $ 0.3050, respectively $0.2800 from $0.2550, 2/21/08 – HLND respectively 8/7/08 – HLND and $60 and HPGP report HPGP report Second- Fourth-Quarter 2007 5/8/08 – HLND and Quarter 2008 results 11/6/08 – HLND results HPGP report First- and HPGP report Quarter 2008 results Third-Quarter 2008 10/23/08 – HLND and results HPGP receive $12.1 million $50 from SemCrude bankruptcy proceedings 11/18/08 – HLND and HPGP announce $40 fiscal year 2009 guidance estimates $30 $20 $10 $ 6.50 $ 2.77 $0 12/13/07 12/11/07 2/27/08 5/12/08 7/23/08 10/2/08 12/12/08 Source: FactSet, Hiland press releases HLND HPGP Project Double Barrel 6 |
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| HLND Price Performance HLND vs. Public Comparables — IPO to Present 250 200Price150Indexed 100 50 (57%) (71%) 0 2/10/05 8/29/05 3/17/06 10/03/06 4/20/07 11/07/07 5/23/08 12/12/08 Hiland Partners, LP Gathering & Processing Index1HLND’s unit price had outperformed its peer group from the time of its IPO until recently HLND vs. Public Comparables — 8/31/08 to Present 120 100 80Indexed Price60 40 (65%) 20 (84%) 0 8/31/08 8/29/08 9/15/08 10/03/08 10/20/08 11/07/08 11/24/08 12/12/08 Hiland Partners, LP Gathering & Processing Index1 Source: FactSet1Includes APL, CPNO, XTEX, DPM, EROC, EXLP, MWE, KGS, RGNC, NGLS, WES and WPZ Project Double Barrel 7 |
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| HPGP Price Performance Like HLND, HPGP has seen its unit price fall sharply since the end of the summer HPGP vs. Public Comparables — IPO to Present 250 200 150Indexed Price100 50 (73%) (84%) (91%) 0 9/20/06 1/12/07 5/10/07 9/03/07 12/28/07 4/23/08 8/15/08 12/12/08 HPGP XTXI AHDHPGP vs. Public Comparables — 8/31/08 to Present 120 100 80Price 60Indexed 40 20 (81%) (87%) (92%) 0 8/31/08 8/29/08 9/15/08 10/03/08 10/20/08 11/07/08 11/24/08 12/12/08 HPGP XTXI AHD Source: FactSet Project Double Barrel 8 |
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| Price Performance Relative to Commodities HLND, HPGP, Oil, NGLs & Natural Gas — HLND IPO to Present 350 300 250 200 150 100 (2%) (10%) (25%) 50 (71%) (85%) 0 2/10/05 11/15/05 8/23/06 6/1/07 3/11/08 12/12/08 1 HLND HPGP Oil Natural Gas NGLsHLND, HPGP, Oil, NGLs & Natural Gas — 8/31/08 to Present Both Hiland’s unit price and commodity prices have declined in recent months 120 100 80 (19%) 60 40 (55%) (67%) 20 (84%) 0 (87%) 8/31/08 9/18/08 10/6/08 10/22/08 11/7/08 11/25/08 12/12/08 HLND HPGP Oil Natural Gas NGLs1 Source: FactSet1Natural Gas Liquids is a weighted average of Mont Belvieu C2, C3, nC4, iC4 and C5 Project Double Barrel 9 |
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| Premiums Paid Analysis and Historical Trading of HLND and HPGP Premiums Paid Analysis (All Transactions)1Premiums Paid Analysis (Cash Transactions)1 U.S. Based Acquisitions U.S. Based Acquisitions January 2000 — Present January — Present One Day One Week Four Weeks One Day One Week Four Weeks Prior Prior Prior Mean 35.1% 36.2% 40.1% Mean 38.5% 39.4% 42.4% Median 26.5% 28.4% 29.6% Median 29.8% 30.0% 32.3% 25th Percentile 14.3% 15.0% 15.7% 25th Percentile 15.3% 16.5% 16.2% 75th Percentile 43.3% 45.0% 47.2% 75th Percentile 48.6% 49.6% 47.3% HLND Unit Price $ 6.50 $ 8.11 $13.80 HLND Unit Price $ 6.50 $ 8.11 $ 13.80 HLND Implied Price Per $ 8.22 $10.41 $17.89 HLND Implied Price $ 8.44 $10.54 $ 18.26 Unit at Median Per Unit at Median HPGP Unit Price $ 2.77 $ 2.78 $ 6.51 HPGP Unit Price $ 2.77 $ 2.78 $ 6.51 HPGP Implied Price Per $ 3.50 $ 3.57 $ 8.44 HPGP Implied Price $ 3.59 $ 3.61 $ 8.61 Unit at Median Per Unit at Median1U.S. transactions; Deal size between $50 Million and $250 Million1 U.S. transactions; Deal size between $50 Million and $250 MillionHLND 12-Month Units Traded Analysis (as of 12/12/08) HPGP 12-Month Units Traded Analysis (as of 12/12/08) 44.1% 38.1% 19.2% 15.3% 16.6% 14.4% 10.2% 9.3% 10.5% 7.7% 6.4% 5.1% 3.2% $0.00 — $ 10.00 $10.00 — $12.00 $12.00 — $ 17.00 $17.00 — $ 27.00 $27.00 — $ 37.00 $37.00 — $ 47.00 $47.00+ $0.00 — $ 3.00 $3.00 — $ 5.00 $5.00 — $ 10.00 $10.00- $16.00 $ 16.00 — $ 22.00 $22.00+ Unit Price Unit Price Premium to 12/12/08 price (100.0%) — 53.8% 53.8% — 84.6% 84.6% — 161.5% 161.5% — 315.4% 315.4% — 469.2% 469.2% — 623.1% 623.1% — 669.2% Premium to 12/12/08 price (100.0%) — 8.3% 8.3% — 80.5% 80.5% — 261.0% 261.0% — 477.6% 477.6% — 694.2% 694.2% — 928.7% % Public Float 15.3% 6.4% 7.7% 19.2% 3.2% 38.1% 10.2% % Public Float 5.1% 9.3% 10.5% 14.4% 16.6% 44.1% Cumulative % of Public Float 0.0% 21.6% 29.3% 48.5% 51.7% 89.8% 100.0% Cumulative % of Public Float 0.0% 14.4% 24.9% 39.3% 55.9% 100.0%10-Day VWAP 30-Day VWAP 60-Day VWAP 90-Day VWAP 10-Day VWAP 30-Day VWAP 60-Day VWAP 90-Day VWAP $ 8.14 $ 12.54 $ 16.89 $19.51 $ 3.06 $5.15 $ 8.65 $11.10 Source: CapIQ Project Double Barrel 10 |
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| HLND Equity Research Research Coverage Firm Name Ratings Target Price Raymond James Buy $15.00 RBC Hold 36.00 Barclays Hold 23.00 Morgan Keegan Sell NAAverage $24.67 % Buy 25% % Hold 50% % Sell 25% “With the rapid decline in NGL and natural gas prices, and the effective collapse of the processing spreads in the early part of the 4Q/08 has dampen [sic] the outlook for the partnership. We expect to see the management team get defensive and have reduced our growth assumption and required growth capex, as we have done with other MLPs. We expect management to reduce the distribution growth rate to retain cash to fund projects internally.”- RBC Capital Markets (Mark Easterbrook) 11/18/08 “LT growth prospect positive in a normalized commodity and credit market given strong partnership with a key shale producer.”- Barclays Capital (Richard Gross) 11/14/08 “We believe that the commodity price environment has worsened since our downgrade of HLND two weeks ago. We are now estimating that HLND will cut its distribution to a very modest $0.20/unit or 2.8% yield (a significant discount to the 48.6% yield based on the latest distribution declaration), less than the S&P 500. Without a distribution, we do not see any compelling reason to own HLND units until definitive signs of sustained commodity price improvement.”- Morgan Keegan (John Edwards) 12/11/08 Note: Excludes Wachovia Securities Project Double Barrel 11 |
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| Commodity Price HistoryCommodity prices have been in a free fall since late summer, with NGL prices hit particularly hard by the impact of Hurricanes Gustav and Ike shortly after Labor Day.5-Year Price — Crude Oil / Natural Gas / Natural Gas Liquids1 Average Price Since Current vs. Price At 1/1/2004 1/1/2006 8/31/2008 11/18/2008 1/1/2008 8/31/2008 11/18/2008 Crude Oil $67.58 $80.25 $73.46 $47.64 (52.0%) (57.1%) (5.6%) NGLs $42.17 $48.54 $39.54 $23.95 (65.5%) (66.5%) (15.3%) Natural Gas $7.40 $7.48 $ 6.74 $ 6.59 (29.4%) (27.8%) (17.6%) $225 $ 16 / Bbl) Natural $200 $ 14 $ $175 $ 12 $150 $ 10 $125 $7.91/MMBtu Gas Price ( Oil & NGL Price ( $ 8 $ $100 Crude / $74.54/Bbl MMBtu) $ 6 $75 $30.29/Bbl $ 4 $50 $25 $ 2 $0 $ 0 1/1/04 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 Crude Oil Natural Gas Natural Gas Liquids Crude Oil Strip Natural Gas Strip Natural Gas Liquids Strip Source: Historical data from Bloomberg; forward strip prices from Wachovia Commodities1Natural Gas Liquids is a weighted average of Mont Belvieu C2, C3, nC4, iC4 and C5 Project Double Barrel 12 |
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| NGL-to-Crude Relationship HistoryThe severe price deterioration in NGLs is evident in the deviation from the historical NGL-to-crude ratio.5-Year NGL-to-Crude Ratio1 100%Average Since 2004-2007 1/1/2004 Last 2 Years LTM 8/31/2008 90% 65.8% 63.7% 60.8% 55.8% 48.6% 80% 70% 49% 54% 60% 50% 41% 40% 30% 20% 10% 0% 1/1/04 12/24/04 12/23/05 12/22/06 12/21/07 12/19/08 12/18/09 12/17/10 12/16/11 12/14/12 12/13/13 NGL to Crude Ratio NGL to Crude Ratio — Strip NGL- to Crude Ratio - Hiland Projections Source: Historical data from Bloomberg; forward strip prices from Wachovia Commodities; Hiland projections based on NGL to Crude ratios provided by Management and using crude strip prices from Wachovia Commodities1 Natural Gas Liquids is a weighted average of Mont Belvieu C2, C3, nC4, iC4 and C5 Project Double Barrel 13 |
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| Hiland Capitalization HLND HPGP Total Current unit price (as of 12/12/08) $ 6.50 $ 2.77 Equity Market Capitalization $ 62.0 $ 59.9 $121.8 Net debt 255.1 0.3 255.4 Enterprise Value 317.1 60.1 377.2Hiland Partners, LP Capitalization Table (in Millions)9/30/08 12/31/08 Est.1 Cash $ 12.1 $ 11.0 Debt Credit Facility 262.1 263.8 Capital Lease Obligations 5.2 4.6 Total Debt 267.3 268.3 Partners’ Equity 139.0 127.9 Total Capitalization 406.3 396.3 LTM EBITDA 70.8 68.0Credit Statistics Debt / LTM EBITDA 3.77x 3.95x Debt / Total Capitalization 65.8% 67.7%1 Based on HLND’s management guidanceHLND is expected to end the year only slightly within its key debt / EBITDA covenant Project Double Barrel 14 |
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| Hiland EBITDA Price Sensitivity 2009 EBITDA Price Sensitivity to Commodity Prices $ 70 $ 68.2 $ 61.3 $58.9 $ 60 $49.5 $ 50 Millions) $40.2 $ 40 in $ $30.9 ( $ 30 EBITDA $ 21.5 $ 20 $ 10 $0 2009 Commodity Prices: -50% -25%Strip1 +25% +50% +75% Crude Oil $ 27.91 $41.86$55.82$69.77 $83.73 $97.68 Natural Gas 3.00 4.506.007.50 9.00 10.50 NGLs 0.33 0.490.660.82 0.99 1.15To maintain the MQD and achieve covenant compliance, Hiland requires a 2009E EBITDA of $61.3 million, or 52.5% greater than projected at current strip prices 2009 EBITDA EBITDA to Meet 4.0x Debt/EBITDA Covenant at 12/31/09 Note: Assumes payment of minimum quarterly distributions, with remainder of cash flow used to reduce debt. Differentials held at a constant percent of natural gas strip prices1Strip prices as of December 12, 2008 per Wachovia Commodities Project Double Barrel 15 |
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| Status Quo Commentary Status Quo Projections XA032 Based on management’s operating 2009 Quarterly Projections Annual Projections projections and commodity strip prices as ($ in millions, except per unit amounts) 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2009 2010 2011 2012 2013 of December 12, 2008, HLND is projected Commodity Prices (as of 12/12/08) SUP 1 /SUP NYMEX Natural Gas $ 5.54 $ 5.73 $ 6.04 $ 6.69 $ 6.00 $ 7.18 $ 7.49 $ 7.49 $ 7.50 to be in violation of its debt covenants NYMEX Crude Oil $ 51.84 $ 55.22 $ 57.19 $ 59.03 $ 55.82 $ 63.53 $ 68.64 $ 71.55 $ 73.66 beginning in 1Q 2009. Conway Basket Average $ 0.605 $ 0.610 $ 0.637 $ 0.669 $ 0.630 $ 0.707 $ 0.987 $ 1.029 $ 1.059 XA032 Mt. Belvieu Basket Average $ 0.651 $ 0.672 $ 0.698 $ 0.726 $ 0.687 $ 0.772 $ 1.050 $ 1.094 $ 1.127 Distribution coverage for 2009 based on CIG Differential ($ 1.791) ($ 1.851) ($ 1.953) ($ 2.162) ($ 1.940) ($ 2.322) ($ 2.422) ($ 2.421) ($ 2.423) meeting MQD. PEPL Differential ($ 0.930) ($ 0.962) ($ 1.015) ($ 1.123) ($ 1.007) ($ 1.206) ($ 1.258) ($ 1.257) ($ 1.259) XA032 Centerpoint Differential ($ 0.865) ($ 0.894) ($ 0.944) ($ 1.044) ($ 0.937) ($ 1.122) ($ 1.170) ($ 1.169) ($ 1.171) 1.2x distribution coverage OGT Differential ($ 0.847) ($ 0.876) ($ 0.924) ($ 1.023) ($ 0.918) ($ 1.099) ($ 1.146) ($ 1.145) ($ 1.147) XA032 Commodity price assumptions: Financial Results SUP 2 /SUP XA032 NYMEX natural gas and crude oil Base EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 47.8 $ 61.5 $ 64.1 $ 65.7 Growth EBITDA 0.0 0.0 0.0 0.0 0.0 1.1 3.6 3.6 3.6 prices through 2013 from Wachovia’s EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 48.8 $ 65.1 $ 67.7 $ 69.3 commodities group Maintenance Capital Expenditures (1.6) (2.2) (2.0) (1.7) (7.6) (8.5) (8.5) (8.5) (8.5) Interest Expense (3.3) (3.3) (3.3) (3.4) (13.4) (14.3) (14.5) (15.4) (16.3) XA032 NGL prices for 2009 and 2010 from Capital Lease Payments (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) (0.4) (0.4) (0.4) Wachovia’s commodities group and Distributable Cash Flow $ 3.7 $ 4.0 5.1 $ 6.0 $ 18.9 $ 25.7 $ 41.8 $ 43.4 $ 44.1 from 2011 through 2013 based on Convertible Security Dividend $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 historical correlations to crude oil Remaining Common Distributable Cash Flow $ 3.7 $ 4.0 5.1 $ 6.0 $ 18.9 $ 25.7 $ 41.8 $ 43.4 $ 44.1 XA032 Alternatives include: Distribution Coverage 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x Cash to be Distributed/Pay Debt $ 3.1 $ 3.4 4.2 $ 5.0 $ 15.7 $ 21.4 $ 34.8 $ 36.2 $ 36.7 XA032 Eliminate capital expenditures Average Common Units Outstanding 6.3 6.3 6.3 6.3 6.3 6.3 6.3 7.0 9.3 XA032 Decrease/eliminate equity Average Subordinated Units Outstanding 3.1 3.1 3.1 3.1 3.1 3.1 3.1 2.3 0.0 distributions Distribution Per Common Unit $ 0.45 $ 0.45 $ 0.45 $ 0.52 $ 1.87 $ 2.21 $ 3.09 $ 3.17 $ 3.20 Distribution Per Subordinated Unit $ 0.07 $ 0.1 6 $ 0.43 $ 0.52 $ 1.18 $ 2.21 $ 3.09 $ 2.38 $ 0.00 XA032 Renegotiate existing credit agreement Total Distributions Paid XA032 Repay debt with proceeds from asset Total Distributions to Common $ 2.8 $ 2.8 2.8 $ 3.3 $ 11.8 $ 13.9 $ 19.4 $ 22.3 $ 29.9 Total Distributions to Subordinated 0.2 0.5 1.3 1.6 3.6 6.8 9.5 7.3 0.0 sales Total Distributions to GP/IDRs 0.1 0.1 0.1 0.1 0.4 0.8 5.9 6.6 6.9 XA032 Raise convertible security to repay Total Distributions Paid $ 3.1 $ 3.4 4.2 $ 5.0 $ 15.7 $ 21.4 $ 34.8 $ 36.2 $ 36.7 debt Expansion Capital Expenditures $ 6.9 $ 3.9 $ 3.9 $ 3.9 $ 18.5 $ 21.5 $ 21.5 $ 21.5 $ 21.5 XA032 Equity Issuance $ 0.0 $ 0.0 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Raise new equity to repay debt Credit Metrics XA032 Merge with another entity Debt Balance $ 274.6 $ 277.8 $ 280.8 $ 283.7 $ 283.7 $ 300.9 $ 315.5 $ 329.7 $ 343.9 XA032 Restructure existing enterprise / go Convertible Security Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Debt/LTM EBITDA 4.59x 5.61x 6.77x 7.06x 7.06x 6.16x 4.84x 4.87x 4.97x private Covenant 4.75x 4.75x 4.75x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x Leverage Cushion / (Excess Leverage) $ 9.3 ( $42.7) ($ 83.8) ($ 122.9) ($ 122.9) ($ 105.5) ( $55.0) ( $59.0) ($ 66.9) LTM EBITDA/LTM Interest Expense 4.68x 3.81x 3.17x 3.01x 3.01x 3.42x 4.50x 4.40x 4.25x Covenant 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x Coverage Cushion / (Coverage Shortage) $ 5.6 $ 2.7 0.6 $ 0.0 $ 0.1 $ 6.0 $ 21.7 $ 21.5 $ 20.4 SUP 1 /SUP Based on commodity prices from Wachovia’s commodities group as of December 12, 2008 SUP 2 /SUP Based on HLND’s management guidance Project Double Barrel 16 |
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| Discontinue Growth Capital Expenditures Commentary Projections – Discontinued Growth Capital Expenditures XA032 XA032 Eliminating growth capital expenditures will not alleviate HLND’s credit concerns: XA032 XA032 Reduction of growth capital expenditures of $18.5 million in 2009 and $21.5 million per year, thereafter XA032 XA032 Reduction in EBITDA of $1.1 million in 2010 and $3.6 million per year, thereafter XA032 XA032 HLND remains in violation of its debt covenants. 2009 Quarterly Projections Annual Projections ($ in millions, except per unit amounts) 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2009 2010 2011 2012 2013 Commodity Prices (as of 12/12/08) SUP 1 /SUP NYMEX Natural Gas $ 5.54 $ 5.73 $ 6.04 $ 6.69 $ 6.00 $ 7.18 $ 7.49 $ 7.49 $ 7.50 NYMEX Crude Oil $ 51.84 $ 55.22 $ 57.19 $ 59.03 $ 55.82 $ 63.53 $ 68.64 $ 71.55 $ 73.66 Conway Basket Average $ 0.605 $ 0.610 $ 0.637 $ 0.669 $ 0.630 $ 0.707 $ 0.987 $ 1.029 $ 1.059 Mt. Belvieu Basket Average $ 0.651 $ 0.672 $ 0.698 $ 0.726 $ 0.687 $ 0.772 $ 1.050 $ 1.094 $ 1.127 CIG Differential ($ 1.791) ($ 1.851) ($ 1.953) ($ 2.162) ($ 1.940) ($ 2.322) ($ 2.422) ($ 2.421) ($ 2.423) PEPL Differential ($ 0.930) ($ 0.962) ($ 1.015) ($ 1.123) ($ 1.007) ($ 1.206) ($ 1.258) ($ 1.257) ($ 1.259) Centerpoint Differential ($ 0.865) ($ 0.894) ($ 0.944) ($ 1.044) ($ 0.937) ($ 1.122) ($ 1.170) ($ 1.169) ($ 1.171) OGT Differential ($ 0.847) ($ 0.876) ($ 0.924) ($ 1.023) ($ 0.918) ($ 1.099) ($ 1.146) ($ 1.145) ($ 1.147) Financial Results SUP 2 /SUP Base EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 47.8 $ 61.5 $ 64.1 $ 65.7 Growth EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 47.8 $ 61.5 $ 64.1 $ 65.7 Maintenance Capital Expenditures (1.6) (2.2) (2.0) (1.7) (7.6) (8.5) (8.5) (8.5) (8.5) Interest Expense (3.3) (3.2) (3.2) (3.2) (12.9) (13.0) (12.2) (11.9) (11.6) Capital Lease Payments (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) (0.4) (0.4) (0.4) Distributable Cash Flow $ 3.7 $ 4.1 $ 5.2 $ 6.2 $ 19.4 $ 25.9 $ 40.4 $ 43.3 $ 45.2 Convertible Security Dividend $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Remaining Common Distributable Cash Flow $ 3.7 $ 4.1 $ 5.2 $ 6.2 $ 19.4 $ 25.9 $ 40.4 $ 43.3 $ 45.2 Distribution Coverage 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x Cash to be Distributed/Pay Debt $ 3.1 $ 3.5 $ 4.4 $ 5.2 $ 16.1 $ 21.6 $ 33.7 $ 36.1 $ 37.6 Average Common Units Outstanding 6.3 6.3 6.3 6.3 6.3 6.3 6.3 7.8 9.3 Average Subordinated Units Outstanding 3.1 3.1 3.1 3.1 3.1 3.1 3.1 1.5 0.0 Distribution Per Common Unit $ 0.45 $ 0.45 $ 0.46 $ 0.54 $ 1.90 $ 2.23 $ 3.03 $ 3.16 $ 3.25 Distribution Per Subordinated Unit $ 0.08 $ 0.18 $ 0.46 $ 0.54 $ 1.25 $ 2.23 $ 3.03 $ 1.58 $ 0.00 Total Distributions Paid Total Distributions to Common $ 2.8 $ 2.8 $ 2.9 $ 3.4 $ 11.9 $ 14.0 $ 19.1 $ 24.7 $ 30.3 Total Distributions to Subordinated 0.2 0.6 1.4 1.6 3.8 6.8 9.3 4.8 0.0 Total Distributions to GP/IDRs 0.1 0.1 0.1 0.2 0.4 0.8 5.3 6.5 7.3 Total Distributions Paid $ 3.1 $ 3.5 $ 4.4 $ 5.2 $ 16.1 $ 21.6 $ 33.7 $ 36.1 $ 37.6 Expansion Capital Expenditures $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Equity Issuance $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Credit Metrics Debt Balance $ 267.7 $ 267.0 $ 266.1 $ 265.1 $ 265.1 $ 260.8 $ 254.1 $ 246.8 $ 239.3 Convertible Security Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Debt/LTM EBITDA 4.48x 5.39x 6.42x 6.60x 6.60x 5.46x 4.13x 3.85x 3.64x Covenant 4.75x 4.75x 4.75x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x Leverage Cushion / (Excess Leverage) $ 16.2 ( $31.9) ( $69.1) ($ 104.3) ($ 104.3) ($ 69.8) ( $7.9) $ 9.5 $ 23.4 LTM EBITDA/LTM Interest Expense 4.70x 3.85x 3.24x 3.12x 3.12x 3.68x 5.04x 5.38x 5.66x Covenant 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x Coverage Cushion / (Coverage Shortage) $ 5.5 $ 2.8 $ 0.8 $ 0.4 $ 1.5 $ 8.9 $ 24.9 $ 28.4 $ 30.9 SUP 1 /SUP Based on commodity prices from Wachovia’s com modities group as of December 12, 2008 SUP 2 /SUP Based on HLND’s management guidance Project Double Barrel 17 |
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| Eliminate Equity Distributions and Growth Capital Expenditures Commentary Projections – Elimination of Equity DistributionsBy eliminating distributions and growth capital expenditures while in violation of debt covenants in 2009 and 2010, HLND preserves capital to repay debt.HLND remains in violation of its debt covenant through 2010.Distributions to common and subordinated unitholders resume in 1Q 2011. 2009 Quarterly Projections Annual Projections ($ in millions, except per unit amounts) 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2009 2010 2011 2012 2013 Commodity Prices (as of 12/12/08)1 NYMEX Natural Gas $ 5.54 $ 5.73 $ 6.04 $ 6.69 $ 6.00 $ 7.18 $ 7.49 $ 7.49 $ 7.50 NYMEX Crude Oil $ 51.84 $ 55.22 $ 57.19 $ 59.03 $ 55.82 $ 63.53 $ 68.64 $ 71.55 $ 73.66 Conway Basket Average $ 0.605 $ 0.610 $ 0.637 $ 0.669 $ 0.630 $ 0.707 $ 0.987 $ 1.029 $ 1.059 Mt. Belvieu Basket Average $ 0.651 $ 0.672 $ 0.698 $ 0.726 $ 0.687 $ 0.772 $ 1.050 $ 1.094 $ 1.127 CIG Differential ($ 1.791) ($ 1.851) ($ 1.953) ($ 2.162) ($ 1.940) ($ 2.322) ($ 2.422) ($ 2.421) ($ 2.423) PEPL Differential ($ 0.930) ($ 0.962) ($ 1.015) ($ 1.123) ($ 1.007) ($ 1.206) ($ 1.258) ($ 1.257) ($ 1.259) Centerpoint Differential ($ 0.865) ($ 0.894) ($ 0.944) ($ 1.044) ($ 0.937) ($ 1.122) ($ 1.170) ($ 1.169) ($ 1.171) OGT Differential ($ 0.847) ($ 0.876) ($ 0.924) ($ 1.023) ($ 0.918) ($ 1.099) ($ 1.146) ($ 1.145) ($ 1.147) Financial Results2 Base EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 47.8 $ 61.5 $ 64.1 $ 65.7 Growth EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 47.8 $ 61.5 $ 64.1 $ 65.7 Maintenance Capital Expenditures (1.6) (2.2) (2.0) (1.7) (7.6) (8.5) (8.5) (8.5) (8.5) Interest Expense (3.2) (3.2) (3.1) (3.0) (12.6) (11.7) (10.4) (9.7) (9.4) Capital Lease Payments (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) (0.4) (0.4) (0.4) Distributable Cash Flow $ 3.8 $ 4.2 $ 5.3 $ 6.4 $ 19.7 $ 27.1 $ 42.2 $ 45.5 $ 47.4 Convertible Security Dividend $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Remaining Common Distributable Cash Flow $ 3.8 $ 4.2 $ 5.3 $ 6.4 $ 19.7 $ 27.1 $ 42.2 $ 45.5 $ 47.4 Distribution Coverage NM NM NM NM NM NM 1.2x 1.2x 1.2x Cash to be Distributed/Pay Debt $ 3.8 $ 4.2 $ 5.3 $ 6.4 $ 19.7 $ 27.1 $ 35.2 $ 37.9 $ 39.5 Average Common Units Outstanding 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 Average Subordinated Units Outstanding 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 Distribution Per Common Unit $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 5.40 $ 3.26 $ 3.34 Distribution Per Subordinated Unit $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.19 $ 3.26 $ 3.34 Total Distributions Paid Total Distributions to Common $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 33.9 $ 20.5 $ 21.0 Total Distributions to Subordinated 0.0 0.0 0.0 0.0 0.0 0.0 0.6 10.0 10.2 Total Distributions to GP/IDRs 0.0 0.0 0.0 0.0 0.0 0.0 0.7 7.5 8.2 Total Distributions Paid $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 35.2 $ 37.9 $ 39.5 Expansion Capital Expenditures $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Equity Issuance $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Credit Metrics Debt Balance $ 264.6 $ 260.4 $ 255.0 $ 248.7 $ 248.7 $ 221.5 $ 214.5 $ 206.9 $ 199.0 Convertible Security Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Debt/LTM EBITDA 4.43x 5.26x 6.15x 6.19x 6.19x 4.64x 3.49x 3.23x 3.03x Covenant 4.75x 4.75x 4.75x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x Leverage Cushion / (Excess Leverage) $ 19.3 ( $25.2) ($ 58.0) ($ 87.9) ( $87.9) ( $30.5) $ 31.7 $ 49.5 $ 63.7 LTM EBITDA/LTM Interest Expense 4.70x 3.87x 3.29x 3.20x 3.20x 4.08x 5.92x 6.61x 7.00x Covenant 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x Coverage Cushion / (Coverage Shortage) $ 5.5 $ 2.8 $ 0.9 $ 0.6 $ 2.5 $ 12.6 $ 30.4 $ 35.0 $ 37.51Based on commodity prices from Wachovia’s commodities group as of December 12, 20082Based on HLND’s management guidance Project Double Barrel 18 |
DRAFT
| Financial Projections – Upside Case Financial Projections ($ in millions, except commodity prices) FY 2009 FY 2011 Upside Commodity Prices NYMEX Natural Gas $ 8.25 $ 8.25 $ 8.25 $ 8.25 $ 8.25 $ 8.75 $ 9.50 $ 10.00 $ 10.00 NYMEX Crude Oil 70.00 70.00 70.00 70.00 70.00 75.00 80.00 85.00 85.00 Conway Basket Average 1.007 1.007 1.007 1.007 1.007 1.079 1.150 1.222 1.222 Mt. Belvieu Basket Average 1.071 1.071 1.071 1.071 1.071 1.147 1.224 1.300 1.300 CIG Differential (2.667) (2.667) (2.667) (2.667) (2.667) (2.829) (3.071) (3.233) (3.233) PEPL Differential (1.385) (1.385) (1.385) (1.385) (1.385) (1.469) (1.595) (1.679) (1.679) Centerpoint Differential (1.288) (1.288) (1.288) (1.288) (1.288) (1.366) (1.483) (1.561) (1.561) OGT Differential (1.262) (1.262) (1.262) (1.262) (1.262) (1.338) (1.453) (1.530) (1.530) Financial Information EBITDA $ 13.7 $ 14.8 $ 15.9 $ 16.5 $ 61.0 $ 71.1 $ 73.5 $ 78.1 $ 77.1 Growth CAPEX EBITDA $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 1.1 $ 3.6 $ 3.6 $ 3.6 Adjusted EBITDA $ 13.7 $ 14.8 $ 15.9 $ 16.5 $ 61.0 $ 72.2 $ 77.1 $ 81.7 $ 80.7 Maintenance Capital Expenditures $ 1.6 $ 2.2 $ 2.0 $ 1.7 $ 7.6 $ 8.5 $ 8.5 $ 8.5 $ 8.5 Growth Capital Expenditures $ 6.9 $ 3.9 $ 3.9 $ 3.9 $ 18.5 $ 21.5 $ 21.5 $ 21.5 $ 21.5 Total Capital Expenditures $ 8.5 $ 6.1 $ 5.9 $ 5.6 $ 26.1 $ 30.0 $ 30.0 $ 30.0 $ 30.0 Source: Hiland management Project Double Barrel 19 |
DRAFT
| Strategic Alternatives Project Double Barrel 20 |
DRAFT
| Alternatives Summary — HLND Implied Common Unit Price $0.00 $ 6.00 $12.00 $ 18.00 $24.00 $30.00 $36.00 Strip Case Comparable Transaction Multiples $2.58 $ 11.18 7.0x — 9.0x 2009E EBITDA multiple ($40.2 MM) Public Company Valuation1 HLND Closing Price NM $0.43 4.5x — 6.5x 2009E EBITDA multiple ($40.2 MM) @12/12/08 ($ 6.50) Convertible Security Issuance $ 6.98 $ 11.27 12.5% — 22.5% 2013E exit yield and 20.0% — 30.0% discount rate (8.0x — 4.4x 2013E EBITDA exit multiple) Common Equity Issuance $4.94 $ 9.07 12.5% — 22.5% 2013 exit yield and 20.0% — 30.0% discount rate (8.0x — 4.4x 2013E EBITDA exit multiple) Implied TEV / 2009E EBITDA Multiple ( $40.2 MM) 6.4x 7.8x 9.2x 10.6x 12.0x 13.4x 14.8x Implied TEV / 2010E EBITDA Multiple ( $48.8 MM) 5.3x 6.4x 7.6x 8.7x 9.9x 11.0x 12.2xUpside Case Comparable Transaction Multiples $18.13 $31.18 7.0x — 9.0x 2009E EBITDA multiple ($61.0 MM) Public Company Valuation1 $1.82 $ 14.87 4.5x — 6.5x 2009E EBITDA multiple ($61.0 MM) Convertible Security Issuance $ 9.41 $ 14.49 12.5% — 22.5% 2013E exit yield and 20.0% — 30.0% discount rate (8.0x — 4.4x 2013E EBITDA exit multiple) Common Equity Issuance $ 6.31 $ 11.02 12.5% — 22.5% 2013E exit yield and 20.0% — 30.0% discount rate (8.0x — 4.4x 2013E EBITDA exit multiple) Implied TEV / 2009E EBITDA Multiple ( $61.0 MM) 4.2x 5.1x 6.1x 7.0x 7.9x 8.8x 9.7x Implied TEV / 2010E EBITDA Multiple ( $72.2 MM) 3.6x 4.3x 5.1x 5.9x 6.7x 7.4x 8.2x1 Range excludes the high and low values Project Double Barrel 21 |
DRAFT
| Implied Common Unit Price $0.00 $ 1.00 $3.00 $4.00 $5.00 $6.00 Strip Case Public Company Valuation1 $ 1.62 $1.74 2.5x — 11.0x 2009E GP Cash Flow multiple ($0.3 MM) Convertible Security Issuance $1.24 $1.81 12.5% — 22.5% 2013E exit yield and 20.0% — 30.0% discount rate (8.0x — 4.4x 2013E EBITDA exit multiple) Common Equity Issuance HPGP Closing Price $0.43 $ 0.81 12.5% — 22.5% 2013E exit yield and 20.0% — 30.0% discount rate @12/12/08 ($ 2.77) (8.0x — 4.4x 2013E EBITDA exit multiple)Upside Case Public Company Valuation1 $2.55 $ 5.81 2.5x — 11.0x 2009E GP Cash Flow multiple ($8.3 MM) Convertible Security Issuance $ 2.90 $4.27 12.5% — 22.5% 2013E exit yield and 20.0% — 30.0% discount rate (8.0x — 4.4x 2013E EBITDA exit multiple) Common Equity Issuance 12.5% — 22.5% 2013E exit yield and 20.0% — 30.0% discount rate $1.36 $2.50 (8.0x — 4.4x 2013E EBITDA exit multiple)1 Range excludes the high and low values Project Double Barrel 22 |
DRAFT
| Renegotiate Existing Credit AgreementAmending HLND’s existing credit facility requires majority approval by lenders.The amendment process would entail a thorough, in-person business update presentation to the lenders that allows banks to do their diligence.Before the meeting with all the lenders, Hiland and MidFirst together should reach out to 3-4 of its largest lenders to build support and finalize terms for the amendment requestBank Total Commitment % of Total MidFirst Bank $ 41,250,000 13.8% Bank of America 37,500,000 12.5% Bank of Scotland 37,500,000 12.5% Compass Bank 37,500,000 12.5% US Bank 37,500,000 12.5% Fortis Bank 31,200,000 10.4% Bank of Oklahoma 30,000,000 10.0% Wachovia 28,050,000 9.4% Natixis 9,750,000 3.3% Wells Fargo 9,750,000 3.3%Total $300,000,000 100.0%In today’s environment, lenders would potentially allow HLND to increase its Debt/EBITDA covenant to 5.0x for up to three quarters.Potential terms under an amended facility are the following:L + 350 – 425 pricing grid50 – 100 bps unused commitment fee across the grid50 – 150 bps amendment fee, depending on whether HLND receives an equity infusionLenders may ask for a commitment reductionAt the currently projected Debt/EBITDA ratios of 6.0x – 7.0x based on the current strip, gaining an amendment that solves the covenant problem would be highly unlikely in today’s environment Project Double Barrel 23 |
DRAFT
| Asset Sales CommentaryDivesting of assets will not alleviate HLND’s credit concerns:$100 million proceeds used to repay debt8.0x TEV / 2009E EBITDA divestiture valuationPercentage EBITDA reduction in 2009 drives EBITDA and maintenance capital expenditures reduction in 2010 through 2013HLND remains in violation of its debt covenants through 2010.Distributions to common unitholders resume in 1Q 2011.YE 2009 Debt / EBITDA Multiple Sensitivity Net Asset Sale Proceeds $100.0 $115.0 $130.0 $145.0 $160.0 $175.0 EBITDA TEV / 6.0x 7.5x 7.8x 8.1x 8.5x 9.1x 9.9x 7.0x 6.8x 6.8x 6.8x 6.9x 6.9x 7.0x Assumed 8.0x 6.3x 6.2x 6.1x 6.0x 5.8x 5.6x 2009 9.0x 5.9x 5.8x 5.6x 5.4x 5.2x 4.9x 10.0x 5.7x 5.5x 5.3x 5.0x 4.7x 4.4xProjections – Asset Sales 2009 Quarterly Projections Annual Projections ($ in millions, except per unit amounts) 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2009 2010 2012 2013 Pre-Transaction Financial Results1 EBITDA $ 8.8 $ 9.7 10.6 $ 11.2 $ 40.2 $ 48.8 $ 65.1 $ 67.7 $ 69.3 Maintenance Capital Expenditures (1.6) (2.2) (2.0) (1.7) (7.6) (8.5) (8.5) (8.5) (8.5) Interest Expense (3.3) (3.3) (3.3) (3.4) (13.4) (14.3) (14.5) (15.4) (16.3) Capital Lease Payments (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) (0.4) (0.4) (0.4) Distributable Cash Flow $ 3.7 $ 4.0 5.1 6.0 $ 18.9 $ 25.7 $ 41.8 $ 43.4 $ 44.1 Distribution Coverage 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x Cash to be Distributed/Pay Debt $ 3.1 $ 3.4 4.2 5.0 $ 15.7 $ 21.4 $ 34.8 $ 36.2 $ 36.7 Distribution Per Common Unit $ 0.45 $ 0.45 0.45 $ 0.52 $ 1.87 $ 2.21 $ 3.09 $ 3.17 $ 3.20 Distribution Per Subordinated Unit $ 0.07 $ 0.16 $ 0.43 $ 0.52 $ 1.18 $ 2.21 $ 3.09 $ 2.38 $ 0.00 Expansion Capital Expenditures $ 6.9 $ 3.9 3.9 3.9 $ 18.5 $ 21.5 $ 21.5 $ 21.5 $ 21.5 Credit Metrics Debt Balance $ 274.6 $ 277.8 $ 280.8 $ 283.7 $ 283.7 $ 300.9 $ 315.5 $329.7 $ 343.9 Total Debt/LTM EBITDA 4.59x 5.61x 6.77x 7.06x 7.06x 6.16x 4.84x 4.87x 4.97x Covenant 4.75x 4.75x 4.75x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x Leverage Cushion / (Excess Leverage) $ 9.3 ($ 42.7) 83.8) ($ 122.9) ($ 122.9) ($ 105.5) 55.0) ($ 59.0) ( $66.9) LTM EBITDA/LTM Interest 4.68x 3.81x 3.17x 3.01x 3.01x 3.42x 4.50x 4.40x 4.25x Covenant 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x Coverage Cushion / (Coverage Shortage) $ 5.6 $ 2.7 0.6 0.0 $ 0.1 $ 6.0 $ 21.7 $ 21.5 $ 20.4 Post-Transaction Financial Results1 EBITDA $ 5.6 $ 6.6 $ 7.4 $ 8.1 $ 27.7 $ 34.7 $ 48.5 $ 50.2 $ 51.3 Maintenance Capital Expenditures (1.1) (1.5) (1.4) (1.2) (5.2) (5.9) (5.9) (5.9) (5.9) Interest Expense (2.7) (2.2) (2.2) (2.2) (9.2) (9.1) (8.2) (9.1) (10.0) Capital Lease Payments (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) (0.4) (0.4) (0.4) Distributable Cash Flow $ 1.8 $ 2.8 $ 3.7 4.6 $ 12.9 $ 19.4 $ 34.0 $ 34.9 $ 35.1 Distribution Coverage NM NM NM NM NM NM 1.2x 1.2x 1.2x Cash to be Distributed/Pay Debt $ 1.8 $ 2.8 $ 3.7 4.6 $ 12.9 $ 19.4 $ 28.3 $ 29.1 $ 29.2 Distribution Per Common Unit $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 2.66 $ 2.73 $ 2.75 Distribution Per Subordinated Unit $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Accretion/Dilution to Common Unitholder ($) ($ 0.45) ($ 0.45) 0.45) ($ 0.52) ($ 1.87) ($ 2.21) 0.44) ($ 0.43) ( $0.45) Accretion/Dilution to Common Unitholder (%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (14.1%) (13.6%) (13.9%) Accretion/Dilution to Subordinated Unitholder ($) ($ 0.07) ($ 0.16) 0.43) ($ 0.52) ($1.18) ($ 2.21) 3.09) ($ 2.38) $ 0.00 Accretion/Dilution to SubordinatedUnitholder (%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) NA Expansion Capital Expenditures $ 6.9 $ 3.9 $ 3.9 $ 3.9 $ 18.5 $ 21.5 $ 21.5 $ 21.5 $ 21.5 Credit Metrics Debt Balance at Year-End $ 173.5 $ 174.5 $ 174.7 $ 174.0 $ 174.0 $ 177.1 $ 193.6 $209.8 $ 226.1 Total Debt/LTM EBITDA 3.23x 4.32x 5.98x 6.28x 6.28x 5.10x 3.99x 4.18x 4.41x Covenant 4.00x 4.75x 4.75x 4.75x 4.75x 4.00x 4.00x 4.00x 4.00x Leverage Cushion / (Excess Leverage) $ 41.6 $ 17.2 35.8) ($ 42.4) ($ 42.4) ($ 38.1) $ 0.2 ($ 9.0) ( $20.9) LTM EBITDA/LTM Interest 4.41x 3.59x 2.88x 3.00x 3.00x 3.84x 5.89x 5.52x 5.14x Covenant 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x Coverage Cushion / (Coverage Shortage) $ 3.8 $ 1.3 0.3) 0.0 $ 0.0 $ 7.6 $ 23.8 $ 22.9 $ 21.31 Based on HLND’s management guidance Project Double Barrel 24 |
DRAFT
| Convertible Security Issuance Commentary Projections – Convertible Security IssuanceHLND repays debt by issuing a 4-year convertible security for $125 million at December 31, 2008.Convertible security allows for:8% preferred dividend7% PIKConversion price based on 20% premium to 12/12/08 unit price$7.80 conversion price allows for a 25.0% return to preferred holders with an assumed yield of 12.5% in 2013Security converted to 21.2 million common units in 1/1/2013.GP contributes to maintain its 2% interestHLND is in compliance with debt covenants.Convertible Security Returns Sensitivity Assumed Implied 2013 Conversion Premium 2013 Yield Unit Price 10.0% 20.0% 30.0% 7.5% $20.16 38.0% 36.0% 34.1% 10.0% $15.12 31.5% 29.6% 27.8% 12.5% $12.10 26.8% 25.0% 23.3% 15.0% $10.08 23.2% 21.5% 19.9% 17.5% $8.64 20.3% 18.6% 17.2% 20.0% $7.56 17.9% 16.3% 14.9% 2009 Quarterly Projections Annual Projections ($ in millions, except per unit amounts) 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2009 2010 2011 2012 2013 Commodity Prices (as of 12/12/08)1 NYMEX Natural Gas $ 5.54 $ 5.73 $ 6.04 $ 6.69 $ 6.00 $ 7.18 $ 7.49 $ 7.49 $ 7.50 NYMEX Crude Oil $ 51.84 $ 55.22 $ 57.19 $ 59.03 $ 55.82 $ 63.53 $ 68.64 $ 71.55 $ 73.66 Conway Basket Average $ 0.605 $ 0.610 $ 0.637 $ 0.669 $ 0.630 $ 0.707 $ 0.987 $ 1.029 $ 1.059 Mt. Belvieu Basket Average $ 0.651 $ 0.672 $ 0.698 $ 0.726 $ 0.687 $ 0.772 $ 1.050 $ 1.094 $ 1.127 CIG Differential ($ 1.791) ($ 1.851) ($ 1.953) ($ 2.162) ($ 1.940) ($ 2.322) ($ 2.422) ($ 2.421) ($ 2.423) PEPL Differential ($ 0.930) ($ 0.962) ($ 1.015) ($ 1.123) ($ 1.007) ($ 1.206) ($ 1.258) ($ 1.257) ($ 1.259) Centerpoint Differential ($ 0.865) ($ 0.894) ($ 0.944) ($ 1.044) ($ 0.937) ($ 1.122) ($ 1.170) ($ 1.169) ($ 1.171) OGT Differential ($ 0.847) ($ 0.876) ($ 0.924) ($ 1.023) ($ 0.918) ($ 1.099) ($ 1.146) ($ 1.145) ($ 1.147) Financial Results2 Base EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 47.8 $ 61.5 $ 64.1 $ 65.7 Growth EBITDA 0.0 0.0 0.0 0.0 0.0 1.1 3.6 3.6 3.6 EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 48.8 $ 65.1 $ 67.7 $ 69.3 Maintenance Capital Expenditures (1.6) (2.2) (2.0) (1.7) (7.6) (8.5) (8.5) (8.5) (8.5) Interest Expense (1.9) (1.9) (1.9) (2.0) (7.7) (8.5) (8.2) (9.1) (9.6) Capital Lease Payments (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) (0.4) (0.4) (0.4) Distributable Cash Flow $ 5.1 $ 5.5 $ 6.5 $ 7.4 $ 24.5 $ 31.4 $ 48.0 $ 49.7 $ 50.8 Convertible Security Dividend ( $2.5) ( $2.5) ( $2.6) ( $2.6) ($ 10.3) ( $11.0) ($ 11.8) ( $12.6) $ 0.0 Remaining Common Distributable Cash Flow $ 2.6 $ 2.9 $ 3.9 $ 4.8 $ 14.3 $ 20.4 $ 36.2 $ 37.1 $ 50.8 Distribution Coverage 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x Cash to be Distributed/Pay Debt $ 2.2 $ 2.4 $ 3.3 $ 4.0 $ 11.9 $ 17.0 $ 30.2 $ 30.9 $ 42.3 Average Common Units Outstanding 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 27.4 Average Subord inated Units Outstanding 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 Distribution Per Common Unit $ 0.34 $ 0.38 $ 0.51 $ 0.57 $ 1.80 $ 1.82 $ 2.85 $ 2.88 $ 1.51 Distribution Per Subordinated Unit $ 0.00 $ 0.00 $ 0.00 $ 0.11 $ 0.11 $ 1.71 $ 2.85 $ 2.88 $ 0.00 Total Distributions Paid Total Distributions to Common $ 2.2 $ 2.4 $ 3.2 $ 3.6 $ 11.3 $ 11.4 $ 17.9 $ 18.1 $ 41.5 Total Distributions to Subordinated 0.0 0.0 0.0 0.3 0.3 5.2 8.7 8.8 0.0 Total Distributions to GP/IDRs 0.0 0.0 0.1 0.1 0.2 0.3 3.6 4.0 0.8 Total Distributions Paid $ 2.2 $ 2.4 $ 3.3 $ 4.0 $ 11.9 $ 17.0 $ 30.2 $ 30.9 $ 42.3 Expansion Capital Expenditures $ 6.9 $ 3.9 $ 3.9 $ 3.9 $ 18.5 $ 21.5 $ 21.5 $ 21.5 $ 21.5 Equity Issuance $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Credit Metrics Debt Balance $ 149.8 $ 153.2 $ 156.4 $ 159.5 $ 159.5 $ 177.6 $ 193.0 $ 208.4 $ 216.2 Convertible Security Balance 127.2 129.4 131.7 134.0 134.0 143.6 153.9 165.0 0.0 Total Debt/LTM EBITDA 2.51x 3.09x 3.77x 3.97x 3.97x 3.64x 2.96x 3.08x 3.12x Covenant 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x Leverage Cushion / (Excess Leverage) $ 89.3 $ 44.8 $ 9.5 $ 1.3 $ 1.3 $ 17.8 $ 67.4 $ 62.3 $ 60.8 LTM EBITDA/LTM Interest Expense 5.58x 5.21x 5.07x 5.22x 5.22x 5.72x 7.92x 7.48x 7.25x Covenant 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x Coverage Cushion / (Coverage Shortage) $ 4.8 $ 4.2 $ 4.0 $ 4.4 $ 17.1 $ 23.2 $ 40.5 $ 40.5 $ 40.61Based on commodity prices from Wachovia’s commodities group as of December 12, 20082Based on HLND’s management guidance Project Double Barrel 25 |
DRAFT
| Convertible Security Cash Flow Convertible Security Cash Flows – Strip Case ($ in millions, except per unit amounts) 12/31/08 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2010 2011 2012 2013 Conversion Convertible Investment ($ 125.0) Preferred Distributions $2.5 $2.5 $2.6 $2.6 $11.0 $11.8 $12.6 PIK Interest $2.2 $2.2 $2.3 $2.3 $ 9.6 $10.3 $11.1 LP Unit Distributions $32.0 Principal Balance $165.0 Conversion Price (20.0% Premium) $7.80 Units Issued at Conversion 21.2 2013 Common Unit Distribution $1.51 Assumed Yield 12.5% Projected 2013 Unit Price $12.10 Projected Value at Conversion $255.9 Convertible Cash Flow ($ 125.0) $2.5 $2.5 $2.6 $2.6 $11.0 $11.8 $12.6 $32.0 $255.9 Return on Convertible Security 25.0%Convertible Security Cash Flows – Upside Case ($ in millions, except per unit amounts) 12/31/08 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2010 2011 2012 2013 Conversion Convertible Investment ($ 125.0) Preferred Distributions $2.5 $2.5 $2.6 $2.6 $11.0 $11.8 $12.6 PIK Interest $2.2 $2.2 $2.3 $2.3 $ 9.6 $10.3 $11.1 LP Unit Distributions $36.1 Principal Balance $165.0 Conversion Price (20.0% Premium) $7.80 Units Issued at Conversion 21.2 2013 Common Unit Distribution $1.71 Assumed Yield 12.5% Projected 2013 Unit Price $13.66 Projected Value at Conversion $289.0 Convertible Cash Flow ($ 125.0) $2.5 $2.5 $2.6 $2.6 $11.0 $11.8 $12.6 $36.1 $289.0 Return on Convertible Security 27.8% Project Double Barrel 26 |
DRAFT
| Convertible Security Issuance – HLND Unit DCF Analysis HLND Common Unit DCF – Strip Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution Per Common Unit $1.80 $1.82 $2.85 $2.88 $ 1.51 Assumed Yield 12.5% Implied Future Unit Price $12.10 Discounted Cash Flow1 $9.70 $1.44 $1.16 $1.46 $1.18 $ 4.461Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Strip Case 2009E TEV/EBITDA Sensitivity – Strip Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% Rate 20.0% $11.27 $10.46 $9.88 $9.45 $9.11 Rate 20.0% 9.0x 8.8x 8.7x 8.6x 8.5x 22.5% $10.44 $ 9.71 $9.19 $8.80 $8.49 22.5% 8.8x 8.7x 8.5x 8.4x 8.4x Discount 25.0% $ 9.70 $ 9.04 $8.57 $8.22 $7.94 Discount 25.0% 8.7x 8.5x 8.4x 8.3x 8.2x 27.5% $ 9.03 $ 8.44 $8.01 $7.69 $7.44 27.5% 8.5x 8.4x 8.3x 8.2x 8.1x 30.0% $ 8.43 $ 7.89 $7.50 $7.21 $6.98 30.0% 8.4x 8.2x 8.1x 8.1x 8.0xHLND Common Unit DCF – Upside Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution Per Common Unit $2.83 $3.25 $3.42 $ 3.57 $ 1.71 Assumed Yield 12.5% Implied Future Unit Price $13.66 Discounted Cash Flow1 $12.59 $2.26 $2.08 $1.75 $ 1.46 $ 5.041Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Upside Case 2009E TEV/EBITDA Sensitivity – Upside Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% 20.0% $14.49 $13.57 $12.92 $12.43 $12.05 Rate 20.0% 6.4x 6.3x 6.2x 6.1x 6.1x Rate 22.5% $13.49 $12.67 $12.08 $11.63 $11.29 22.5% 6.3x 6.2x 6.1x 6.0x 6.0x Discount 25.0% $12.59 $11.84 $11.31 $10.91 $10.60 Discount 25.0% 6.1x 6.0x 6.0x 5.9x 5.8x 27.5% $11.78 $11.10 $10.62 $10.26 $ 9.98 27.5% 6.0x 5.9x 5.8x 5.8x 5.7x 30.0% $11.04 $10.43 $ 9.99 $9.66 $ 9.41 30.0% 5.9x 5.8x 5.8x 5.7x 5.7x Project Double Barrel 27 |
DRAFT
| Convertible Security Issuance – HPGP Unit DCF Analysis HPGP Common Unit DCF – Strip Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution Per Common Unit $0.17 $0.40 $0.82 $ 0.85 $0.14 Assumed Yield 12.5% Implied Future Unit Price $1.13 Discounted Cash Flow1 $1.57 $0.13 $0.26 $0.42 $ 0.35 $0.421Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Strip Case 2009E TEV/GP CF Sensitivity – Strip Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% Rate 20.0% $1.81 $1.74 $1.68 $1.64 $1.61 Rate 20.0% 8.4x 8.0x 7.8x 7.6x 7.4x 22.5% $1.69 $1.62 $1.57 $1.53 $1.51 22.5% 7.8x 7.5x 7.3x 7.1x 7.0x Discount 25.0% $1.57 $1.51 $1.47 $1.44 $1.41 Discount 25.0% 7.3x 7.0x 6.8x 6.7x 6.5x 27.5% $1.47 $1.42 $1.38 $1.35 $1.32 27.5% 6.8x 6.6x 6.4x 6.2x 6.1x 30.0% $1.38 $1.33 $1.29 $1.26 $1.24 30.0% 6.4x 6.2x 6.0x 5.9x 5.8xHPGP Common Unit DCF – Upside Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution $0.82 $1.09 $1.21 $ 1.31 $0.41 Per Common Unit Assumed Yield 12.5% Implied $3.30 Future Unit Price Discounted $3.73 $0.66 $0.70 $0.62 $ 0.54 $1.22 Cash Flow11Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Upside Case 2009E TEV/GP CF Sensitivity – Upside Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% Rate 20.0% $4.27 $4.05 $3.89 $3.77 $3.68 Rate 20.0% 4.9x 4.7x 4.5x 4.4x 4.2x 22.5% $3.99 $3.79 $3.65 $3.54 $3.46 22.5% 4.6x 4.4x 4.2x 4.1x 4.0x Discount 25.0% $3.73 $3.55 $3.42 $3.33 $3.25 Discount 25.0% 4.3x 4.1x 4.0x 3.8x 3.8x 27.5% $3.50 $3.34 $3.22 $3.13 $3.07 27.5% 4.0x 3.9x 3.7x 3.6x 3.5x 30.0% $3.29 $3.14 $3.04 $2.96 $2.90 30.0% 3.8x 3.6x 3.5x 3.4x 3.3x Project Double Barrel 28 |
DRAFT
| New Common Equity Issuance – Strip Case CommentaryHLND repays debt by issuing $125 million in equity at December 31, 2008.18.8 million common units issued for $122.5 millionGP contributes to maintain 2% interest25.0 million common units pro forma for equity issuance6.3 million common units currently outstanding18.8 million new units issuedNew investors receive 66.9% of the LP units outstanding post issuanceHLND is in compliance with debt covenants.Projections – Common Equity Issuance at Discounted Unit Price 2009 Quarterly Projections Annual Projections ($ in millions, except per unit amounts) 1Q 2009 2Q 2009 3Q 2009 4Q 2009 2009 2010 2011 2012 2013 Commodity Prices (as of 12/12/08)1 NYMEX Natural Gas $ 5.54 $ 5.73 $ 6.04 $ 6.69 $ 6.00 $ 7.18 $ 7.49 $ 7.49 $ 7.50 NYMEX Crude Oil $ 51.84 $ 55.22 $ 57.19 $ 59.03 $ 55.82 $ 63.53 $ 68.64 $ 71.55 $ 73.66 Conway Basket Average $ 0.605 $ 0.610 $ 0.637 $ 0.669 $ 0.630 $ 0.707 $ 0.987 $ 1.029 $ 1.059 Mt. Belvieu Basket Average $ 0.651 $ 0.672 $ 0.698 $ 0.726 $ 0.687 $ 0.772 $ 1.050 $ 1.094 $ 1.127 CIG Differential ($ 1.791) ($ 1.851) ($ 1.953) ($ 2.162) ($ 1.940) ($ 2.322) ($ 2.422) ($ 2.421) ($ 2.423) PEPL Differential ($ 0.930) ($ 0.962) ($ 1.015) ($ 1.123) ($ 1.007) ($ 1.206) ($ 1.258) ($ 1.257) ($ 1.259) Centerpoint Differential ($ 0.865) ($ 0.894) ($ 0.944) ($ 1.044) ($ 0.937) ($ 1.122) ($ 1.170) ($ 1.169) ($ 1.171) OGT Differential ($ 0.847) ($ 0.876) ($ 0.924) ($ 1.023) ($ 0.918) ($ 1.099) ($ 1.146) ($ 1.145) ($ 1.147) Financial Results2 Base EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 47.8 $ 61.5 $ 64.1 $ 65.7 Growth EBITDA 0.0 0.0 0.0 0.0 0.0 1.1 3.6 3.6 3.6 EBITDA $ 8.8 $ 9.7 $ 10.6 $ 11.2 $ 40.2 $ 48.8 $ 65.1 $ 67.7 $ 69.3 Maintenance Capital Expenditures (1.6) (2.2) (2.0) (1.7) (7.6) (8.5) (8.5) (8.5) (8.5) Interest Expense (1.9) (1.9) (1.9) (2.0) (7.7) (8.3) (8.0) (8.6) (9.3) Capital Lease Payments (0.1) (0.1) (0.1) (0.1) (0.4) (0.4) (0.4) (0.4) (0.4) Distributable Cash Flow 5.2 $ 5.5 $ 6.5 $ 7.4 $ 24.6 $ 31.6 $ 48.2 $ 50.2 $ 51.1 Convertible Security Dividend $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Remaining Common Distributable Cash Flow 5.2 $ 5.5 $ 6.5 $ 7.4 $ 24.6 $ 31.6 $ 48.2 $ 50.2 $ 51.1 Distribution Coverage 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x 1.2x Cash to be Distributed/Pay Debt $ 4.3 $ 4.6 $ 5.4 $ 6.2 $ 20.5 $ 26.4 $ 40.1 $ 41.9 $ 42.5 Average Common Units Outstanding 25.1 25.1 25.1 25.1 25.1 25.1 25.1 25.1 25.1 Average Subordinated Units Outstanding 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 Distribution Per Common Unit $ 0.17 $ 0.18 $ 0.21 $ 0.24 $ 0.80 $ 1.03 $ 1.57 $ 1.63 $ 1.66 Distribution Per Subordinated Unit $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Total Distributions Paid Total Distributions to Common 4.2 $ 4.5 $ 5.3 $ 6.1 $ 20.1 $ 25.8 $ 39.3 $ 41.0 $ 41.7 Total Distributions to Subordinated 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Distributions to GP/IDRs 0.1 0.1 0.1 0.1 0.4 0.5 0.8 0.8 0.9 Total Distributions Paid $ 4.3 $ 4.6 $ 5.4 $ 6.2 $ 20.5 $ 26.4 $ 40.1 $ 41.9 $ 42.5 Expansion Capital Expenditures $ 6.9 $ 3.9 $ 3.9 $ 3.9 $ 18.5 $ 21.5 $ 21.5 $ 21.5 $ 21.5 Equity Issuance 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Credit Metrics Debt Balance $ 149.4 $ 152.3 $ 155.1 $ 157.8 $ 157.8 $ 174.0 $ 187.5 $ 200.6 $ 213.6 Convertible Security Balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Debt/LTM EBITDA 2.50x 3.08x 3.74x 3.92x 3.92x 3.56x 2.88x 2.96x 3.08x Covenant 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x 4.00x Leverage Cushion / (Excess Leverage) $ 89.7 $ 45.7 $ 10.8 $ 3.0 $ 3.0 $ 21.4 $ 73.0 $ 70.1 $ 63.4 LTM EBITDA/LTM Interest Expense 5.59x 5.21x 5.09x 5.24x 5.24x 5.87x 8.09x 7.91x 7.45x Covenant 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x 3.00x Coverage Cushion / (Coverage Shortage) 4.8 $ 4.2 $ 4.0 $ 4.4 $ 17.2 $ 23.9 $ 41.0 $ 42.0 $ 41.41Based on commodity prices from Wachovia’s commodities group as of December 12, 20082Based on HLND’s management guidance Project Double Barrel 29 |
DRAFT
| New Common Equity Issuance Investor ReturnsBased on the strip case, new common equity investors receive a 32.4% IRR on their investment at an assumed 12.5% 2013 exit yield.$125 million required to achieve debt covenant complianceGP contributes $2.5 million to maintain 2% ownership18.8 million common units issued at current price of $6.50 per unit.66.9% LP ownership of HLNDBased on the upside case, new common equity investors receive a 41.8% IRR on their investment at an assumed 12.5% 2013 exit yield.Common Equity Investor Returns – Strip Case Common Equity Investor Returns – Upside Case ($ in millions) ($ in millions) $350.0 $350.0 IRR: 41.8% $300.0 IRR: 32.4% $300.0 $34.9 Stream $31.3 Stream IRR: 36.2% $250.0 $250.0 IRR: 26.7% IRR: 32.5% $34.9 $200.0 $31.3 $200.0 Cash Flow IRR: 22.9% Cash Flow $28.4 $30.7 $33.3 $35.6 $34.9 Investment Investment $150.0 $19.4 $29.5 $30.8 $31.3 $150.0 $15.1 $279.0 $250.2 $100.0 $100.0 $199.3 Equity $178.7 Equity $155.0 $139.0 $122.5 $ 122.5 $ 50.0 $ 50.0 $ — $ - Transaction 2009 2010 2011 2012 2013 2013 2013 Transaction 2009 2010 2011 2012 2013 2013 2013 22.5% Exit 17.5% Exit 12.5% Exit 22.5% Exit 17.5% Exit 12.5% Exit Yield Yield Yield Yield Yield Yield New Equity Purchase Price Exit Valuation Price Distributions New Equity Purchase Price Exit Valuation Price Distributions Project Double Barrel 30 |
DRAFT
| New Common Equity Issuance – HLND Unit DCF Analysis HLND Common Unit DCF – Strip Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution Per Common Unit $0.80 $1.03 $1.57 $1.63 $ 1.66 Assumed Yield 12.5% Implied Future Unit Price $13.27 Discounted Cash Flow1 $7.66 $0.64 $0.66 $0.80 $0.67 $ 4.891Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Strip Case 2009E TEV/EBITDA Sensitivity – Strip Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% Rate 20.0% $9.07 $8.19 $7.55 $7.07 $6.70 Rate 20.0% 8.5x 8.3x 8.2x 8.0x 8.0x 22.5% $8.33 $7.53 $6.95 $6.52 $6.19 22.5% 8.3x 8.1x 8.0x 7.9x 7.8x Discount 25.0% $7.66 $6.94 $6.42 $6.03 $5.73 Discount 25.0% 8.2x 8.0x 7.9x 7.8x 7.7x 27.5% $7.06 $6.41 $5.94 $5.59 $5.31 27.5% 8.0x 7.9x 7.8x 7.7x 7.6x 30.0% $6.53 $5.93 $5.51 $5.19 $4.94 30.0% 7.9x 7.8x 7.7x 7.6x 7.5xHLND Common Unit DCF – Upside Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution Per Common Unit $1.51 $1.63 $1.77 $ 1.89 $ 1.85 Assumed Yield 12.5% Implied Future Unit Price $14.80 Discounted Cash Flow1 $9.39 $1.21 $1.04 $0.91 $ 0.77 $ 5.461Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Upside Case 2009E TEV/EBITDA Sensitivity – Upside Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% Rate 20.0% $11.02 $10.03 $9.32 $8.79 $8.37 Rate 20.0% 5.9x 5.8x 5.6x 5.6x 5.5x 22.5% $10.16 $ 9.26 $8.62 $8.14 $7.77 22.5% 5.8x 5.6x 5.5x 5.5x 5.4x Discount 25.0% $ 9.39 $ 8.58 $8.00 $7.57 $7.23 Discount 25.0% 5.7x 5.5x 5.4x 5.4x 5.3x 27.5% $ 8.70 $ 7.97 $7.44 $7.05 $6.74 27.5% 5.6x 5.4x 5.4x 5.3x 5.3x 30.0% $ 8.08 $ 7.41 $6.94 $6.58 $6.31 30.0% 5.5x 5.4x 5.3x 5.2x 5.2x Project Double Barrel 31 |
DRAFT
| New Common Equity Issuance – HPGP Unit DCF Analysis HPGP Common Unit DCF – Strip Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution Per Common Unit $0.05 $0.08 $0.15 $ 0.16 $0.16 Assumed Yield 12.5% Implied Future Unit Price $1.28 Discounted Cash Flow1 $0.70 $0.04 $0.05 $0.08 $ 0.06 $0.471Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Strip Case 2009E TEV/GP CF Sensitivity – Strip Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% 20.0% $0.83 $0.75 $0.69 $0.64 $0.61 Rate 20.0% 8.3x 7.5x 6.9x 6.4x 6.1x Rate 22.5% $0.76 $0.69 $0.63 $0.59 $0.56 22.5% 7.6x 6.9x 6.3x 5.9x 5.6x Discount 25.0% $0.70 $0.63 $0.58 $0.54 $0.51 Discount 25.0% 7.0x 6.3x 5.9x 5.5x 5.2x 27.5% $0.64 $0.58 $0.54 $0.50 $0.48 27.5% 6.5x 5.9x 5.4x 5.1x 4.8x 30.0% $0.59 $0.54 $0.50 $0.46 $0.44 30.0% 6.0x 5.4x 5.0x 4.7x 4.5xHPGP Common Unit DCF – Upside Case PV Annual Projections 12/31/2008 2009 2010 2011 2012 2013 Distribution Per Common Unit $0.14 $0.39 $0.43 $ 0.46 $0.45 Assumed Yield 12.5% Implied Future Unit Price $3.62 Discounted Cash Flow1 $2.11 $0.11 $0.25 $0.22 $ 0.19 $1.331Based on a 25.0% discount rateCommon Unit DCF Sensitivity – Upside Case 2009E TEV/GP CF Sensitivity – Upside Case 2013 Exit 2013 Exit Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Multiple 8.0x 6.7x 5.7x 5.0x 4.4x Yield 12.5% 15.0% 17.5% 20.0% 22.5% Yield 12.5% 15.0% 17.5% 20.0% 22.5% Rate 20.0% $2.50 $2.26 $2.08 $1.95 $1.85 Rate 20.0% 12.8x 11.6x 10.7x 10.0x 9.5x 22.5% $2.29 $2.07 $1.92 $1.80 $1.71 22.5% 11.7x 10.6x 9.8x 9.3x 8.8x Discount 25.0% $2.11 $1.91 $1.77 $1.66 $1.58 Discount 25.0% 10.8x 9.8x 9.1x 8.6x 8.1x 27.5% $1.94 $1.76 $1.64 $1.54 $1.47 27.5% 10.0x 9.1x 8.4x 7.9x 7.6x 30.0% $1.79 $1.63 $1.52 $1.43 $1.36 30.0% 9.2x 8.4x 7.8x 7.4x 7.0x Project Double Barrel 32 |
DRAFT
| Merger Cost of Capital and Liquidity Analysis Wachovia has analyzed the cost of capital and liquidity position of the gathering and processing universe of partnerships Current Total Available Current Cost of Cost of Cost of Liquidity Partnership Yield Equity1 Debt2 Capital3 (in MMs)4 Western Gas Partners, LP 9.5% 9.7% 8.3% 9.0% $ 116 Enterprise Product Partners L.P. 10.1% 11.8% 8.3% 10.0% 1,962 Oneok Partners, L.P. 9.2% 11.4% 9.7% 10.5% 410 Energy Transfer Partners, L.P. 10.3% 16.2% 9.4% 12.8% 1,104 Williams Partners L.P. 17.8% 21.9% 11.9% 16.9% 306 Copano Energy, L.L.C. 20.9% 20.9% 14.9% 17.9% 509 Quicksilver Gas Services LP 19.4% 19.9% 17.8% 18.8% 53 Regency Energy Partners LP 20.9% 21.7% 18.5% 20.1% 240 MarkWest Energy Partners, L.P. 23.7% 23.7% 17.1% 20.4% 445 Eagle Rock Energy Partners, L.P. 27.3% 27.7% 17.8% 22.7% 394 DCP Midstream Partners, LP 23.8% 28.3% 17.8% 23.0% 253 Targa Resources Partners LP 29.1% 32.1% 17.8% 24.9% 440 Crosstex Energy, L.P. 42.1% 55.7% 17.8% 36.8% 319 Atlas Pipeline Partners, L.P. 58.1% 74.5% 16.2% 45.3% 239Hiland Partners, LP 54.2% 70.4% 17.8% 44.1% $401 Incorporates percentage of total distributions paid to the general partner2 Based on the partnerships’ outstanding bond yields, or 17.8% for partnerships without bonds outstanding (Wachovia Midstream MLP Index average yield)3Based on assumed long-term target capital structure of 50% debt / 50% equity4Based on current credit facility availability plus cash, less $10 million minimum balance Project Double Barrel 33 |
DRAFT
| Merger Ability To Pay Analysis AssumptionsBased on consensus 2009E EBITDA for potential acquirors and Hiland 2009E EBITDA based on strip prices as of 12/12/08 from Wachovia Commodities.50% debt / 50% equity financing.No premium paid for HPGP.2009 EBITDA multiple based on $40.2 million.$5.0 million in expected synergies.MLP Ability to Pay1 $10.00 . $8.72 $ 9.00 $ 8.00 $6.94 $ 7.00 HLND Price (@12/12/08): $6.50 Price $ 6.00 $ 5.36 per HLND Unit $ 5.00 Purchas e $ 4.00 $ 3.00 Breakev en $ 2.00 $ 1.00 N/M N/M N/M $ 0.00 OKS WES EPD ETP CPNO WPZ Premium to HLND Price: $2.22 $0.44 ($ 1.14) N/M N/M N/M % Premium to HLND Price: 34.1% 6.7% (17.5%) N/M N/M N/M Implied Total Purchase Price (In Millions):2 $ 401 $384 $ 369 $289 $201 $ 201 2009E EBITDA Multiple:2 10.0x 9.6x 9.2x 7.2x 5.0x 5.0x1Assumes no accretion / dilution for acquiror2Includes purchase of HPGP at current price Project Double Barrel 34 |
DRAFT
| Recent Midstream Transactions Recent Midstream Transactions Acquiror Seller Date Price Target Description Valuation 12/8/2008 $730.0 MMDEP announced the acquisition of partnership interests in three 15.0x midstream energy companies located in Texas from affiliates of EPDEPD now owns approximately 74% of the outstanding limited partner 10.0x 6.6x units of DEPDEP paid EPD $280.5 million in cash and issued to EPD approximately 5.0x 37.3 million of DEP Class B units valued at $449.5 millionMultiple could be affected by the drop-down nature of transaction where 0.0x the parent holds a significant economic interest in the underlying assets Estimated 11/11/2008 $210.0 MMWestern Gas plans to acquire gathering and processing assets in the Powder River Basin from its GP sponsor Anadarko 15.0xTo enhance the stability of WES’ cash flow, management plans to sign a swap agreement with APC to mitigate commodity price risk 10.0x 8.0xWES will $175 million 5-year note to APC with an interest rate issue a fixed at 4% for the first two years and then floating at LIBOR plus 150 5.0x bps. $35 million will be funded with 2.56 million common units issued to APC at $13.69/unit 0.0xMultiple could be affected by the drop-down nature of transaction where Estimated the parent holds a significant economic interest in the underlying assets 9/17/2008 $976.0 MMEl Paso Pipeline Partners, L.P. (“EPB”) agreed to acquire an additional 15.0x 30% interest in Colorado Interstate Gas Company (“CIG”) and an 9.8x additional 15% interest in Southern Natural Gas Company (“SNG”) from 10.0x 8.5x 8.1x El Paso Corporation (“EP”)Funded $175 million of private placement debt, $65 million 5.0x through: cash, $ 10 million note to EP, 27,761,611 common units issued to EP and $240 million of assumed debt 0.0xMultiple could be affected by the drop-down nature of transaction where LTM 2008E 2009E the parent holds a significant economic interest in the underlying assets 6/30/08 9/16/2008 $236.0 MMEROC agreed to acquire 100% of the outstanding units of Millennium 15.0x Midstream Partners (“MMP”) 8.7x 8.1xMMP is a natural gas gathering and processing company located in East 10.0x Texas, Central Texas and West Texas 5.0x$181 million paid in cash and $55 million paid through the issuance EROC common units 0.0x116.8 MMBtu/d gathered and 215 MMcf/d processed LTM 6/30/08 2009E 8/28/2008 $116.0 MMKinder Morgan Energy Partners, L.P. (“KMP”) acquired two pipeline 15.0x systems from Knight Inc.Knight’s one-third interest in the Express-Platte crude oil pipeline systems 10.0x that run from Alberta to Illinois 6.5xA 24-mile jet fuel pipeline that serves the Vancouver, British Columbia, 5.0x airportKnight’s significant promoted interest in the assets and private company 0.0x status could account for a lower transaction multiple Estimated 4/30/2008 $184.0 MMSunoco Logistics Partners L.P. acquired a refined products pipeline 15.0x system located in Texas from affiliates of Exxon Mobil Corporation 9.2x 10.0x472-mile refined product pipeline system in Texas and 6 refined product terminals 5.0xInitially financed with debt and support of $ 5.5 million from 0.0x the GP of Sunoco over 4 years to provide accretion to the common unitholders Estimated Project Double Barrel 35 |
DRAFT
| Go Private Assumptions General Assumptions4.0 million of HLND and 8.4 million units of HPGP are purchased for total consideration of $54.1 million.$7.80 per HLND unit$2.77 per HPGP unit9.5x 2009E EBITDA based on strip caseTransaction close on 12/31/08.$1.0 million in savings from elimination of public company costs.Free cash flow used to repay revolver.Dividends allowed with leverage below 4.0x debt/EBITDAAcquisition financed with revolver and cash from equity investor(s).Target leverage at close of 4.0x 2009E EBITDAExisting revolver remains in placeRequires $92.7 million in additional equity to comply with debt covenants.Interest expense based on current pricing grid. |
| Purchase Price Analysis ($ in millions, except per unit amounts) HLND HPGP Current Units Units % of Total $ Value (MM) Units % of Total % Mkt Value Harold Hamm 0 0.0% $ 0.0 13,244,675 61.3% $ 36.7 HPGP Ownership 5,381,471 57.6% 35.0 0 0.0% 0.0 Purchased Units Other Insiders 58,748 0.6% $ 0.4 203,808 0.9% $ 0.6 Total Insiders 5,440,219 58.2% $ 35.4 13,448,483 62.2% $ 37.3 Institutional Ownership 2,529,290 27.1% 16.4 6,016,139 27.8% 16.7 Public Ownership 1,372,826 14.7% 8.9 2,142,878 9.9% 5.9 Total Purchased 3,960,864 42.4% $ 25.7 8,362,825 38.7% $ 23.2 Total Outstanding 9,342,335 100.0% $ 60.7 21,607,500 100.0% $ 59.9 Current Unit Price $ 6.50 $ 2.77 Current Market Value of Purchased Units $ 25.7 $ 23.2 Implied Market Capitalization $ 60.7 $ 59.9 Current Unit Price $ 6.50 $ 2.77 % Premium 20.0% 0.0% Purchase Price per Unit $ 7.80 $ 2.77 Minority Stake Purchase Price $ 30.9 $ 23.2 Implied Equity Value $ 72.9 $ 59.9 Net Debt Outstanding 256.8 0.7 Enterprise Value $329.6 $ 60.6 2009E EBITDA (Base) $ 41.2 2009E EBITDA (Upside) $ 62.0 Implied Multiple of 2009E EBITDA (Strip) 8.0x Implied Multiple of 2009E EBITDA (Upside) 5.3x Total Purchase Price $ 54.1 Total Implied Equity Value $132.7 Total Net Debt 257.5 Total Enterprise Value $390.2 Implied Multiple of 2009E EBITDA (Strip) 9.5x Implied Multiple of 2009E EBITDA (Upside) 6.3x1Assumes savings of $450K for K-1/Tax Prep Fees, $300K of lower Board Fees and $250K of savings for Other Public Company costs (D&O, non-deal roadshow travel, conferences, etc.). Project Double Barrel 36 |
DRAFT
| Returns Analysis Internal Rate of Return – Strip Case Cash On Cash Returns – Strip Case 45.0% 41.0% 2.5x 40.0% 2.1x 34.5% 1.9x 35.0% 2.0x 29.9% 30.2% 1.7x 30.0% 26.7% 1.5x 24.4% 1.5x 1.3x 25.0% 1.1x 20.0% 16.2% 17.0% 17.0% Internal Rate of Cash on Cash 1.0x 0.9x Return 15.0% 0.7x 0.5x 10.0% 0.5x 5.0% 0.0% 0.0x 2011 2012 2013 2011 2012 2013 7.0x EBITDA Exit Multiple 9.0x EBITDA Exit Multiple 11.0x EBITDA Exit Multiple 7.0x EBITDA Exit Multiple 9.0x EBITDA Exit Multiple 11.0x EBITDA Exit MultipleInternal Rate of Return – Upside Case Cash On Cash Returns – Upside Case 3.5x 70.0% 65.4% 3.0x 65.0% 2.9x 3.0x 60.0% 2.5x 54.9% 53.5% 2.5x 2.2x 55.0% 2.1x 50.0% 47.0% 46.8% 1.8x 2.0x 45.0% 1.5x 1.4x 38.8% 41.1% Cash on Cash 1.5x Internal Rate of 40.0% 37.2% 1.1x Return 34.1% 35.0% 1.0x 30.0% 0.5x 25.0% 20.0% 0.0x 2011 2012 2013 2011 2012 2013 7.0x EBITDA Exit Multiple 9.0x EBITDA Exit Multiple 11.0x EBITDA Exit Multiple 7.0x EBITDA Exit Multiple 9.0x EBITDA Exit Multiple 11.0x EBITDA Exit Multiple Note: IRR and Cash on Cash Returns assumes 20% and 0% premium to HLND and HPGP unit price, respectively Cash on Cash Returns calculated as all equity receipts over equity investments Project Double Barrel 37 |
DRAFT
| Returns Sensitivity Analysis 5-Year Equity IRR – Strip Case Unit Price % Premium Purchase Market TEV / 2009E 2013 Exit Multiple HLND HPGP HLND HPGP Price Cap TEV EBITDA 7.0x 8.0x 9.0x 10.0x 11.0x 12.0x $7.80 $2.77 20.0% 0.0% $54.1 $132.7 $390.2 9.5x 17.0% 21.0% 24.4% 27.4% 30.2% 32.7% $8.45 $3.05 30.0% 10.0% $59.0 $144.8 $402.2 9.8x 15.5% 19.4% 22.8% 25.8% 28.6% 31.0% $9.10 $3.32 40.0% 20.0% $63.8 $156.8 $414.3 10.1x 14.0% 17.9% 21.3% 24.3% 27.0% 29.5% Premiumto $9.75 $3.60 50.0% 30.0% $68.7 $168.9 $426.4 10.3x 12.7% 16.6% 19.9% 22.9% 25.6% 28.1% UnitPrice $10.40 $3.88 60.0% 40.0% $73.6 $181.0 $438.4 10.6x 11.4% 15.3% 18.6% 21.6% 24.3% 26.7% $11.05 $4.16 70.0% 50.0% $78.5 $193.0 $450.5 10.9x 10.2% 14.1% 17.4% 20.4% 23.0% 25.4%5-Year Equity IRR – Upside Case Unit Price % Premium Purchase Market TEV / 2009E 2013 Exit Multiple HLND HPGP HLND HPGP Price Cap TEV EBITDA 7.0x 8.0x 9.0x 10.0x 11.0x 12.0x $7.80 $2.77 20.0% 0.0% $54.1 $132.7 $390.2 6.3x 34.1% 37.8% 41.1% 44.1% 46.8% 49.2% $8.45 $3.05 30.0% 10.0% $59.0 $144.8 $402.2 6.5x 31.6% 35.4% 38.7% 41.6% 44.3% 46.8% $9.10 $3.32 40.0% 20.0% $63.8 $156.8 $414.3 6.7x 29.3% 33.1% 36.4% 39.4% 42.0% 44.5% Premiumto $9.75 $3.60 50.0% 30.0% $68.7 $168.9 $426.4 6.9x 27.2% 31.0% 34.3% 37.3% 39.9% 42.4% UnitPrice $10.40 $3.88 60.0% 40.0% $73.6 $181.0 $438.4 7.1x 25.3% 29.1% 32.4% 35.3% 38.0% 40.4% $11.05 $4.16 70.0% 50.0% $78.5 $193.0 $450.5 7.3x 23.5% 27.3% 30.6% 33.5% 36.2% 38.6% Project Double Barrel 38 |
DRAFT
| Sources and Uses, Capitalization and Credit Metrics – Strip Case Sources and Uses ($ in Millions) Sources Uses New Equity (Cash to Delever) $ 92.7 Partial Repayment of Debt $ 92.7 New Equity (Cash to HLND & HPGP) 54.1 Purchase of Public Equity 54.1 Revolver 2.0 Fees and Expenses 2.0 Total Sources $148.7 Total Uses $148.7Pro Forma Capitalization ( $ in Millions) Pro Forma Cumulative Cumulative Capitalization PF 12/31/2009 PF 12/31/2010 $ % Leverage1 Leverage2 Revolver $164.8 41.7% Total Senior Secured Debt 164.8 41.7% 4.0x 3.3x Capital Leases 4.6 1.2% Total Debt 169.4 42.9% 4.1x 3.4x Equity 225.4 57.1% Total Capitalization $394.8 100.0% 9.6x 7.9x1 Based on Pro Forma 12/31/09 Adjusted EBITDA of: $41.22 Based on Pro Forma 12/31/10 Adjusted EBITDA of: $49.8Credit Metrics1 ($ in Millions) Projected 2009 Revenue $387.7 $309.9 $378.2 $425.5 $431.1 435.5% Growth n/a (20.1%) 22.0% 12.5% 1.3% 1.0% EBITDA $ 66.4 $ 41.2 $ 49.8 $ 66.1 $ 68.7 $ 70.3% Margin 17.1% 13.3% 13.2% 15.5% 15.9% 16.1% Less: Working Capital Usage ( $3.5) $ 0.9 $ 1.4 $ 0.3 $ 0.2 Less: Total Cash Interest Expense 4.9 7.8 11.1 13.7 14.5 Less: Maintenance Capital Expenditures 7.6 8.5 8.5 8.5 8.5 Less: Expansion Capital Expenditures 18.5 21.5 21.5 21.5 21.5 Free Cash Flow Before Debt Repayment $ 13.6 $ 11.2 $ 23.6 $ 24.7 $ 25.6 Less: Scheduled Debt Repayment 0.0 0.0 0.0 0.0 0.0 Excess Cash Flow Available for Debt Sweep, Incremental CapEx or Dividends $ 13.6 $ 11.2 $ 23.6 $ 24.7 $ 25.6 Revolver (Repayments)/Borrowings ( $4.6) $ 34.6 $ 65.1 $ 10.2 $ 6.3 Equity (Infusion)/Dividend $ 9.1 $ 45.8 $ 88.6 $ 34.9 $ 31.9 Cash Balance (End of Year) $ 4.0 $ 4.0 $ 4.0 $ 4.0 $ 4.0 $ 4.0 Senior Secured Debt Balance (End of Year) $164.8 $160.2 $194.8 $259.9 $270.1 276.5 Total Debt Balance (End of Year) $169.4 $164.8 $199.4 $264.5 $274.7 281.0 Leverage Statistics Senior Secured Debt / EBITDA 2.5x 3.9x 3.9x 3.9x 3.9x 3.9x Total Debt / EBITDA 2.6x 4.0x 4.0x 4.0x 4.0x 4.0x EBITDA / Interest Expense 9.6x 8.3x 6.4x 6.0x 5.0x 4.9x1Assumes 12/31/08 close Project Double Barrel 39 |
DRAFT
| Sources and Uses, Capitalization and Credit Metrics – Upside Case Sources and Uses ($ in Millions) Sources Uses New Equity (Cash to Delever) $ 92.7 Partial Repayment of Debt $ 92.7 New Equity (Cash to HLND & HPGP) 54.1 Purchase of Public Equity 54.1 Revolver 2.0 Fees and Expenses 2.0 Total Sources $148.7 Total Uses $148.7Pro Forma Capitalization ($ in Millions) Pro Forma Cumulative Cumulative Capitalization PF 12/31/2009 PF 12/31/2010 $ % Leverage1 Leverage2 Revolver $164.8 41.7% Total Senior Secured Debt 164.8 41.7% 2.7x 2.3x Capital Leases 4.6 1.2% Total Debt 169.4 42.9% 2.7x 2.3x Equity 225.4 57.1% Total Capitalization $394.8 100.0% 6.4x 5.4x1 Based on Pro Forma 12/31/09 Adjusted EBITDA of: $62.02 Based on Pro Forma 12/31/10 Adjusted EBITDA of: $73.2Credit Metrics1 ($ in Millions) Projected 2009 2013 Revenue $387.7 $421.2 $477.6 517.0 543.7 $543.0% Growth n/a 8.6% 13.4% 8.3% 5.2% (0.1%) EBITDA $ 66.4 $ 62.0 $ 73.2 $ 78.1 $ 82.7 $ 81.7% Margin 17.1% 14.7% 15.3% 15.1% 15.2% 15.0% Less: Working Capital Usage ( $1.7) $ 1.1 $ 0.5 $ 0.5 $ 0.0 Less: Total Cash Interest Expense 6.4 11.2 14.2 16.2 17.0 Less: Maintenance Capital Expenditures 7.6 8.5 8.5 8.5 8.5 Less: Expansion Capital Expenditures 18.5 21.5 21.5 21.5 21.5 Free Cash Flow Before Debt Repayment $ 31.2 $ 30.9 $ 33.3 $ 36.1 $ 34.7 Less: Scheduled Debt Repayment 0.0 0.0 0.0 0.0 0.0 Excess Cash Flow Available for Debt Sweep, Incremental CapEx or Dividends $ 31.2 $ 30.9 $ 33.3 $ 36.1 $ 34.7 Revolver (Repayments)/Borrowings $ 78.5 $ 44.9 $ 19.6 $ 18.6 ($ 4.1) Equity (Infusion)/Dividend $109.7 $ 75.8 $ 52.9 $ 54.6 $ 30.6 Cash Balance (End of Year) $ 4.0 $ 4.0 $ 4.0 $ 4.0 $ 4.0 $ 4.0 Senior Secured Debt Balance (End of Year) $164.8 $243.3 $288.2 307.7 326.3 $322.2 Total Debt Balance (End of Year) $169.4 $247.8 $292.7 312.3 330.9 $326.8 Leverage Statistics Senior Secured Debt / EBITDA 2.5x 3.9x 3.9x 3.9x 3.9x 3.9x Total Debt / EBITDA 2.6x 4.0x 4.0x 4.0x 4.0x 4.0x EBITDA / Interest Expense 9.6x 9.7x 6.6x 5.5x 5.1x 4.8x1Assumes 12/31/08 close Project Double Barrel 40 |