Based in Los Angeles, California, Rentech Nitrogen Partners, L.P. – proposed symbol RNF – scheduled a $300 million IPO with a market capitalization of $765 million at a price range mid-point of $20 for Friday, November 4, 2011.

SUMMARY

RNF was formed in July 2011 by Rentech (RTK), a publicly traded provider of clean energy solutions and nitrogen fertilizer, to own, operate and grow a nitrogen fertilizer business, that was established in 1965.

RNF is a spin-off of Rentech (RTK), which had a market capitalization of $330 on October 27, 2011, and a book value of $41 million. The RNF spin-off is expected to have a market cap of $765 million, over twice that of the parent, see below.

Two other publicly held companies also in the nitrogen fertilizer business are CVR Partners (UAN) and Terra Nitrogen (TNH).

VALUATION

Limited partnerships are mostly valued based on current and expected payouts, or yields.

RNF’s proforma yield of 11.7% for the year ending September 2012 yield looks enticing, if the assumptions can be believed (see below). Both TNH and UAN currently yield in the 9% range.

PROFORMA DISTRIBUTION PROJECTIONS				12 months ending
			Sept '10	June 2011	Sept 2012
Adjusted EBITDA ($mm)			$30.5	$75.8	$100.6
Cash for distribution			$0.44	$1.54	$2.34
Yield at $20			2.2%	7.7%	11.7%

			Price /	Post IPO	Post IPO
Valuation Ratios	IPO Mrkt	Price /	Pretax	Price /	Price /	% offered
Sept qtr estimate for RNF	Cap (mm)	Sales	Earnings*	BookValue	TangibleBV	in IPO
Rentech Nitrgn LP (RNF)	$765	5.0	19	6.9	6.9	39%
			for the L.P.s below
						Payout
Rentech Nitrgn LP (RNF)	$765	5.0	19	6.9	6.9	11.7% proj
Rentech (RTK- parent) June qtr	$330	1.1	10	8.0	10.1	none
RTK note: prior four quarters losses totaled $29mm, versus June qtr's $7.9mm profit
CVR Partners (UAN) June qtr	$1,870	5.8	12	3.9	4.2	8.9%
Terra Nitrogen (TNH) June qtr	$3,210	4.1	11	12.2	12.2	9.2%

Notice that RNF’s proforma payout for the June quarter of 7.7% is less than either UAN’s 8.9% or TNH’s 9.2%

Our current nitrogen fertilizer preference is CVR Parnters (UAN), based on its yield and lower price to book value. See our pre-IPO analysis of CVR Partners (UAN)

http://seekingalpha.com/article/261568-ipo-pick-of-the-week-cvr-partners-expects-14-8-dividend-payout

IMAGINATIVE INVESTMENT BANKERS

Perhaps the RNF IPO can be attributed to imaginative investment bankers, who discovered an undervalued parent company, Rentek, and are using the RNF IPO to ‘revalue Rentek’s assets.

The investment bankers are creating $775 million in new market value for a parent (RTK) whose pre-IPO net worth is $41 million.

Also, there’s not much left at the table after the parent RTK rakes in the cash. For example, the IPO is expected to net RNF $275 million. . $151 is allocated to be repaid to the parent RTK to pay down a loan, . $40 million is to be repaid to the parent RTK for expenses, . $35 million is to be paid to the RNHI, which is essentially the parent RTK. . $8.1 is to be used for plant expansion, . $40 is to be used for working capital

So the newly public operating partnership gets only $48 million from the IPO, the parent gets $226 million in cash and also gets $460 million in newly created limited partnership interests, at the price range mid-point of $20.

BUSINESS

RNF was formed in July 2011 by Rentech (RTK) to own, operate and grow RTK’s nitrogen fertilizer business.

The nitrogen fertilizer facility, located in East Dubuque, Illinois, has been in operation since 1965 and has a long track record of operating at high capacity utilization, with infrequent unplanned shutdowns. The plant produces primarily ammonia and UAN at facility, using natural gas as primary feedstock. Natural gas costs are usually a little over 50% plus of the cost of goods sold.

TAXES

A unit-holder will be allocated an amount of U.S. federal taxable income due of approximately 40% of the cash distributed.

For example, "if you receive an annual distribution of $2.34 per common unit, we estimate that your average allocable U.S. federal taxable income per year will be no more than $0.94 per common unit." S-1 page 19

http://www.sec.gov/Archives/edgar/data/1525998/000119312511281117/d211007ds1a.htm#rom211007_77

KEY OPERATING DATA & ASSUMPTIONS

Key Operating Data			Sept fiscal yr			Sept 2102 yr
and Assumptions	2008	2009	2010	June9mos'10	June9mos'11	projections
Amonia - products sold, tons	173	126	153	118	106	140
UAN	313	267	294	195	238	274
Product pricing - amonia	$539	$726	$377	$371	$580	$663
UAN ($ per ton)	$308	$267	$180	$185	$259	$328
Production - amonia, tons	$299	$267	$267	$194	$218
UAN ($ per ton)	$311	$274	$287	$207	$245
On stream factors - amonia %	99.5	98.10	91.8	89	100	94
UAN %	98.4	96.70	92.9	91	100	94
Source: S-1 page 22
Natural gas prices per MMBtu*	$9.34	$5.67	$4.69		$4.73	$4.95
*natural gas is an important feedstock, 50% + of the cost of goods

USE OF PROCEEDS

Of $275 million

$226 in proceeds to the parent, RTK

$151 million of the net proceeds of this offering to make a capital contribution to REMC (owned by RTK) for the repayment in full and termination of REMC’s existing term loan and the payment of related fees and expenses;

$40 million of the net proceeds of this offering to make a distribution to RNHI (owned by the parent, RTK) to reimburse it for expenditures made by REMC during the two-year period preceding this offering for the expansion and improvement of the facility.

$35 million for an additional contribution to RNHI (owned by RTK)

$48 mm in proceeds to RNF

. $40.0 million for general working capital purposes . $1.8 million for the payment of expenditures related to the replacement of RNF’s steam methane reformer tubes . $5.7 million for the payment of expenditures related to urea expansion and the DEF build-out project . $0.6 million for the payment of expenditures related to the ammonia capacity expansion project

Rentech Nitrogen LP	RNF, C+, 6.5					Post IPO shares: 38mm
Nitrogen fertilizer mfg			Sept fiscal yr
Los Angeles, CA	2008	2009	2010	June9mos'10	June9mos'11	IPO Mkt
Revenues ($mm)	$217	$186	$131	$96	$141	Cap (mm)
Gross Profit %	26%	32%	19%	18%	41%	$765
Pre-tax income %	23%	25%	15%	5%	41%	@$20
EBITDA	$60	$64	$30	$22	$66
EBITDA % of revenue	28%	34%	23%	23%	47%
Note: RNF generally undergoes a facility turnaround every two years, which typically lasts 18 to 25 days
Key Operating Data and Assumptions						Sept 2102 yr
						projections
Amonia - products sold, tons	173	126	153	118	106	140
UAN	313	267	294	195	238	274
Product pricing - amonia	$539	$726	$377	$371	$580	$663
UAN ($ per ton)	$308	$267	$180	$185	$259	$328
Production - amonia, tons	$299	$267	$267	$194	$218
UAN ($ per ton)	$311	$274	$287	$207	$245
On stream factors - amonia %	99.5	98.10	91.8	89	100	94
UAN %	98.4	96.70	92.9	91	100	94
Source: S-1 page 22
Natural gas prices per MMBtu*	$9.34	$5.67	$4.69		$4.73	$4.95
*natural gas is an important feedstock, 50% plus of the cost of goods
PROFORMA DISTRIBUTION PROJECTIONS				12 months ending
			Sept '10	June 2011	Sept 2012
Adjusted EBITDA ($mm)			$30.5	$75.8	$100.6
Cash for distribution			$0.44	$1.54	$2.34
Yield at $20			2.2%	7.7%	11.7%
			Price /	Post IPO	Post IPO
Valuation Ratios	IPO Mrkt	Price /	Pretax	Price /	Price /	% offered
Sept qtr estimate for RNF	Cap (mm)	Sales	Earnings*	BookValue	TangibleBV	in IPO
Rentech Nitrgn LP (RNF)	$765	5.0	19	6.9	6.9	39%
			for the L.P.s below
						Payout
Rentech Nitrgn LP (RNF)	$765	5.0	19	6.9	6.9	11.7% proj
Rentech (RTK- parent) June qtr	$330	1.1	10	8.0	10.1	none
RTK note: prior four quarters losses totaled $29mm, versus June qtr's $7.9mm profit
CVR Partners (UAN)	$1,870	5.8	12	3.9	4.2	8.9%
Terra Nitrogen (TNH) June qtr	$3,210	4.1	11	12.2	12.2	9.2%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	1.5	2	1	6.5