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Inergy, L.P. Message Board

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  • Lots of discussion of the potential for a distribution cut. A couple of things to note.

    First, the distribution cut notion may be coming in part from a prediction by a blogger called MLPguy who predicted a distribution cut from one of the propane MLP's. Note that Ferrellgas also seems to be struggling and their yield was over 11% last time I checked. I don't follow Ferrellgas closely, but noted that they just announced layoffs in Kansas City.

    Second, the decline nat gas prices is getting lots of publicity. Many posters on different message boards are discussing it and the WSJ just did a story.

    Third, NRGY has room on their credit facility to fund the dividend. Remember, the NRGM IPO provided them with funds which they used to pay down higher cost debt, but it also resulted in transferring some $80mm of debt to NRGM. The earnings report will likely include several charges for extinguishment of debt, which while a negative to earnings, should improve their cashflow going forward. Now that NRGM has risen to around $19 per share (up from the offering price), they could also sell some more of their stake if they had to, although that would be a last resort.

    Finally, the distribution announcement is due next week. Some investors may be bailing out to limit their risk. In my opinion, a cut is not coming because they have reduced a significant amount of debt with the proceeds of the midstream IPO, that their ratios should have improved.

    I am losing patience with the stock and looking for a bounce, hopefully after the distribution is maintained. A distribution cut would be a killer.

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    • While I agree with much of what you said, particluarly with respect to NRGM, I disagree with your assertion that a distribution cut would be a killer. The funders would view it positively, analysts would view it positively, and it would put the company on a more sustainable path, albeit with a somewhat lower yield. And, of course, the size of the reduction would determine the market's reaction as well. The larger the cut, the more pronounced the reaction would be. But I believe it would be a temporary reaction and an opportunity for smart money to accumulate the stock. Given that the stock is already evidently discounting that possibility to a near certainty, it may already be time to accumulate additional units.

    • I think NKA is the most likely MLP to cut their distribution, and even then I think it may be next quarter rather than this one. Their 2012 dcf shortfall is likely to by much worse than NRGY's.

      As for NRGY, I think they will be reluctant to cut the distribution unless the situation is really dire. If coverage is in the 90% range, I'd think they would rather keep the distribution at the same level and wait for things to improve. Despite what one other poster said, when MLPs cut the distribution it is perceived negatively by the market and the unit price takes a haircut. Some other MLPs have gone with coverage less than 1 for a while (CPNO, for example).

 

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