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Atlas Resource Partners, L.P. Message Board

  • bosox_pats bosox_pats Jul 30, 2013 12:27 PM Flag

    ARP Common Units Capped to Yield 10% Short Term?

    ARP issued 9.25% subordinated debt at a discount recently. The subordinated debt is just a notch up in the capital structure from the common units. By issuing debt at these levels it inherently caps the near-term upside in the common units as it would be unusual for the common to trade through the debt that has a senior claim on the assets. Therefore, 100 bps behind the debt makes sense. However, with a $2.60 distribution and a 10% yield, there is upside to $26 over the intermediate term.

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    • When I read the 9.25 coupon rate I couldn't believe it. I wasn't thrilled with the last acquisition and this was just the final nail in the coffin in that regards.

      I was expecting something like 7.75 or 8 at a slight discount.

      But I don't think it puts a cap on things. The note pays what it pays - the common can pay more in the future. And most folks don't even look at the debt structure before investing.

      If they deliver as promised in the next quarter (their 3rd) then I believe we'll see at least $25. When they start talking 2015 and can put up a number near $3 then $35+ is possible IMO. Not too many people understand the drilling program - we are an E&P and that carries risk - and (IMO) this last acquisition is only a "winner" at higher NG prices. So that's the reason we lag.

      • 1 Reply to davidbdc2001
      • David, I received ARP units through the ATLS spin-off and added more each time it was around $21. I agree with you that the units sometime in 2014 will trade into the 30s as market starts to discount a $3 distribution. I still think the better way to play the Atlas complex is through ATLS. Just follow what the Cohen's own and follow the money. ARP is a solid investment. I think we are in the "show me" phase with the drilling program as last year's raise was admittedly disappointing. Should they print $250 MM or higher, I think the market reacts immediately.

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