I read a lot of posts that say something along the line of "I don't really understand this CNG, but I like the dividend."
Now, in fairness, I have to say that I am quite negative about Cheniere, and will be looking for different ways to short various pieces of the puzzle. But I am intelligent enough to know that my posts are not going to be affecting the price of the stock, and I'm not trying to bad mouth it, just to bad mouth it. I'm trying to share my (possibly wrong) opinion, in the interest of alerting people to the risks here.
And the risk of buying for the dividend is this: Of what good does a $1.70 dividend do you, if the stock should drop $3, $4, $5 points or more?
I have been shortselling for over twenty years, and the more I look into this company (Cheniere in total, I mean) the more I see red flag after red flag. To be blunt, it looks "Enron-ish".
1) It's simplistic, but look at the short interest on LNG. I have never seen high ratios like that that did not indicate professional shorts were all over the stock. Not technical traders, but fundamental shorts, who are betting that the company will die. What do they see, that you don't?
2) The company bleeds cash. The Total and Chevron contracts only give them enough cash to pay the interest on the debt they owe. The dividend, in effect comes from borrowed money, or selling new shares. We call bringing in new investors to pay the original ones..... well, Bernie Madoff went to jail for doing that.
3) Read the press and research reports, and note how many of them call LNG "speculative" or "very speculative". LNG is dependent on CNG. If LNG goes down, it will be because CNG goes down.
4) LNG is pushing more and more of the risks onto CNG. At least one of the "guarantees" to CNG, comes from CNG's own subsidiary. Huh?
5) What happens, if and when, the subordinated shares convert to full shares? The same total dividend, but paid out to 5 times as many shareholders.
I'm not asking you to take my word for this. But please do some serious research for yourself. IMHO, if you can't say to yourself, "This guys full of hot air, and here's why", then you shouldn't own this stock.
What you don't know............. can hurt you.
Thanks! I didn't realize Sabine made public GAAP filings - I had assumed they filed something with the FERC. I haven't looked at their FERC filing yet, but I definitely will later, as it will probably contain some interesting operational data that's not disclosed in the GAAP financials.
Anyways back to the point - they certainly aren't shy in disclosing the details of this deal. Does anyone read these filings or take the time to understand them?
From the Sabine 10-K, p8:
[We believe Cheniere Investments could be determined to lack economic substance apart from Sabine Pass LNG if, for example, Cheniere Investments has no substantive business and is not pursuing, and has no prospect of developing, any substantive business apart from its TUA with Sabine Pass LNG.]
[If Cheniere Investments does not receive distributions from us, Cheniere Investments may not be able to continue to make payments to us under its TUA, which could have a material and adverse effect on our business, results of operations, financial condition and prospects.]
Personally, I'm of the opinion that the deal between CQP Investments and LNG Marketing has zero economic substance - the deal simply would not exist between non-related parties. Think about it, Investments assumed a $250m annual commitment for 80% of Marketing's trading profits, which were $20 million in total last year?
<<The viability of that VCRA is, IMHO, why the parent pushed it down a level lower, as attempt to semi-shield itself from the VCRA failure.>>
IMHO, the VCRA is almost a non-factor. Marketing will continue to do what it has done to generate marginal revenues by making short-term deals and trades. However, with the assignment of the TUA to CQP investments, the cash flows are now independent of Marketing and the LNG parent altogether, they are completely contained within CQP and self-funding, in my mind, perpetually.
My next task is to pore through the lending agreements - I have found the original Indenture from November 2006, but I need to review the subsequent amendments before I can reach any sort of conclusion. I'll ask it again, how can the lenders be okay with this? Sure, their interest payments are covered by the Chevron/Total TUA's, but I just don't see how they can ever hope to recover the principle or why they would consider refinancing the debt coming due in 2013.
Data: FYI I tried making the above post hours ago, but my account was frozen or something...
Anyway, interesting stuff on the lawsuit, I haven't had a chance to read it yet. So it's centerbridge AND creditors that are the plaintiffs? I certainly think they have a leg to stand on. But, to be fair, I don't think the company was trying to mislead anyone. It's a copmlicated arrangement(s), but it's all disclosed in their public filings.
Check out page 83 of their 11/16/2006 8-K filing - section 4.11 of the Original Indenture. There's some language in there revolving around affiliate transactions - almost reads that even IF the affiliate revenue is such under GAAP, they could still be in violation of this section covenants.
I wonder how this all plays out :)
Just read the Centerbridge lawsuit.
Cheniere Investments relies on dividend payments from Sabine, and Sabine gets $250 million a year from the TUA with Investments.
They make no bones about it, and say that the accountants tell them it's revenue.
Cheniere claims Centerpoint is trying to build a coalition of bond holders to present a formal notice of default, with the intent of seeking a "monetary benefit" from Cheniere. Plain language, "They are planning extortion".
So this isn't new news, at least not to the big boys.
<<I now think the answer is clear WHY Investments would be structured ABOVE Sabine... it's paying the TUA with cash distributed from Sabine! It's almost as if they are kiting the distributions.>>
Totally. I had that detail already, and already had Investments above Sabine. Yes, "kiting" is not a bad analogy.
The viability of that VCRA is, IMHO, why the parent pushed it down a level lower, as attempt to semi-shield itself from the VCRA failure.
Checking for the Sabine filings now....... sure hope I didn't screw up and not keep the linking info.
The last sentence in my last post should have read "... because the entire Cheniere family depends on it"
To your first question, yes, exactly. However, I don't think Chen. Marketing is marketing capacity, they are selling LNG cargoes into the market, if and only when it is profitable. Under the VCRA, 80% of that profit is kicked back to this Chen. Investments entity - but you have to keep the overall Cheniere org. chart in mind and remember where the pieces sit (look at page 32 of the prospectus supplment just filed for the most current org chart - http://www.sec.gov/Archives/edgar/data/3570/000119312511156255/d424b5.htm)
1. Chen. Marketing is a "third-party" at the CQP level.
2. Chen. Investments is a consolidating entity at the CQP level, but ABOVE (i.e. parent to) Sabine Pass in their most recent org chart. This is truly, truly bizarre. Remember the debt covenants are calculated based on revenues at the SABINE level, not CQP.
Prior to finding the most recent org. chart in the pro supp, my main question was:
"Where is Chen. Investments entity getting $250M a year to pay it's TUA with Sabine?" Because there is no way the VCRA generates enough cash to cover the $250 annually.
I now think the answer is clear WHY Investments would be structured ABOVE Sabine... it's paying the TUA with cash distributed from Sabine! It's almost as if they are kiting the distributions.
A few posts above you mentioned that the Sabine Pass entity had standalone financial statements filed somewhere? Can you provide a link or tell me where to find, because I am now very, very curious.
A few other interesting things worth note:
1. LNG no longer guarantees the $250M TUA that was assigned to Cheniere investments
2. Found this little gem in the MD&A - something else to chew on...
LNG 10-K, p35 - "To the extent payments from Cheniere Marketing to Cheniere Investments under the VCRA or new Cheniere Partners' business increase Cheniere Partners' available cash in excess of the common unit and general partner distributions and certain reserves, the cash would be distributed to us in the form of distributions on our subordinated units and related general partner distributions."
But we do agree on the fact that the utilization rate for Chevron and Total is irrelevant, right? Except as it indicates demand for Marketing's product, which supports the VCRA.
The way I read, figure, if Marketing can't sell Terminal Usage to legitimately outside buyers, she goes down, and quickly.
Thank you for your honest feelings-comments. I do agree with you. I did some research came up with same rseults.. I was very lucky since I bought for my grand childrens accounts/mine when it was between $6 & $7...
All very good points - let me add one:
The company cannot meet its debt covenants without the "VCRA" agreement with the related party LNG subsidiary, which allows CQP to distribute cash up to the parent, LNG, which in turn provides the cash needed for LNG to fund the VCRA. I cannot understand how the lenders are okay with this agreement.