The real issue is that NRGY bought out the GP at a premium which reduced coverage ratio, then turned around and bought Tres Palacios at the top and it was also a very large deal, so it was a double whammy. They had low coverage due to the GP buyout, Tres was large and they overpaid and then the propane business started struggling more than was anticipated. All of that being said, they still are covering the distribution by about .8x-.9x.
They happen to own the absolute best Appalachian storage assets. The combination of Steuben, Stagecoach, Us Salt, Finger Lakes is hands down the envy of the midstream sector. It is in the right location and they are now somewhat integrated with each other.
Will those crown jewel assets, along with the proposed Marc I pipeline save the company. My feeling is that they will survive but unless Marc I is built within a year or two, they will not be able to maintain the distribution at this level and it will need to be cut by 10-20%.
Propane is struggling, but it is not dead.
The IPO of NRGY Midstream will likely breath some life into the company...
Good observations. The GP buy-out reduces future costs by eliminating IDRs, and the payout on Tres Palacios likely depends on expected volumes from the Marcellus, which should materialize in 2012.
Another factor is the re-financing of the debt, which resulted in a $49M charge in Q2. This is a non-cash item, a write-off of costs capitalized when that debt was issued, and it reduces future debt amortization costs by the same $49M.
So there are three major factors in the financials that obscure the results of the underlying business. Most analysts pretty much ignore these factors, just as they focus on EPS to the exclusion of DCF, which most MLP investors believe is far more important.
Add in the pipeline IPO and 2012 may look better than expected for NRGY.