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PVR Partners, L.P. Message Board

  • lark_williams lark_williams Mar 6, 2013 8:42 PM Flag

    Cash Flow looking weak

    Any thoughts on them? Cash flow is way down. Swing of $170 in net income YoY. Investment activity is way up from acquisitions and capital expenditure. Sustaining themselves through a large secondary offering and borrowing. Unclear how the dividend will be sustained. I am a bit nervous about PVR. Is there anyone with an MLP forensic eye who can comment on what looks to me like a struggling company -- they seem in much worse shape than in 2010 when they had earnings and did not need to invest so highly. I'm a bit worried on this one

    Sentiment: Sell

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    • Suggest you read up on MLPs. Go to NAPTP and read their primer on MLPs. The ONLY way a MLP can expand is by borrowing or issuing units since they pay out most of their DCF. If you do not understand DCF - you probably did not read the primer. They also do not pay a dividend - never have! They pay a distribution - again read up on MLPs. OK?

      PVR is trying to change from a coal company to one more in the NG/ngl business. Time will tell how that will work. I note I do not own PVR.

    • I don't own PVR, so take what I say with a grain of salt. I sold after the Chief Gathering acquisition about a year ago because I thought they way overpaid.

      First, forget 2012 earnings - there were several one-time charges that tanked earnings - midwest systems impairments and acquisition charges. Also, PVR was spending money on the Chief Gathering buildout in the Marcellus without getting any earnings from a lot of those expenditures yet. This was pretty much expected.

      Another poster quoted from the earnings call and clearly the company thinks its prospects are OK. So I have nothing to add on that score. I just wanted to add something about the convoluted units that PVR issued last year because they affect the cash that PVR needs to cover its distributions.

      The company has the equivalent of 120 million units outstanding, but only 95 million get current distributions in cash. The special units (10 million or so) were issued to the sellers in the Chief Gathering deal, and they don't get any distributions until starting in Q4 of 2013. So for the first 3 Qs this year, no cash is needed for those units.

      Also as part of the Chief Gathering deal, PVR issued 22 million class B units, which are PIK. That is, these units get quarterly distributions, but PVR can choose to pay those distributions by issuing additional Class B units rather than cash.

      Both the special units and the Class B units were issued because when PVR acquired Chief, PVR recognized that it was going to cost a lot of money to build out the Marcellus systems that Chief owned. So they specifically planned not to pay cash distributions for at least 2 years on the new units.

      So PVR needs about $ 210 million in cash flow to fund its current distribution ($2.20 times 95 million units). They didn't reach that level in 2012. They claim that they will cover this year's distributions with cash flow, but not until later in the year. More in the next post. Sorry.

      • 1 Reply to jrad52
      • They need the Chief Gathering systems to really produce cash flow when they are fully operational in order to cover this year's distribution. Then, in 2014, the number of units that get cash distributions increases so they will need improvement next year as well. the company says it will do this. I think it's a long shot, but they know the day-to-day operations so maybe they are right. I'm just not willing to bet my money on their success.

    • from 4th quarter cc transcript-part 1

      William H. Shea -
      "...We expect our quarterly volume growth anticipated -- with the quarterly volume growth anticipated and the accompanying EBITDA and DCF, that our coverage ratio will be greater than 1x for 2013 on an as-paid basis.
      Also remember that our results are somewhat seasonal, with the first quarter being a little lighter, due predominantly to weather that impacts well hookups and a general slowdown in activity levels. The second quarter will resume the growth, and the second half is anticipated to be strong...."

      Michael J. Blum - Wells Fargo Securities, LLC, Research Division
      Okay. Great. That will be very helpful. Can you also just talk about the decision to increase the distribution in the fourth quarter, just given where the guidance is going and where the fourth quarter numbers came in?

      William H. Shea -
      Sure, Michael. This is Bill, I'll take that one. Again, as I stated earlier, the Board of Directors takes a look at that issue every single quarter, and based on management's view of the future in terms of our ability to generate EBITDA and DCF to pay the distribution, and taking a look at our ratability and consistency of EBITDA and cash flow that we expect throughout 2013 and beyond, the decision was made to increase the distribution and continue the distributions that have occurred over the past several quarters. So I think the -- while the guidance has come down, the confidence level in the increase in EBITDA and DCF growth is there and supports the distribution increase on an as-paid basis. And as you know, the other units will be paid as of, I think, the middle of 2014. And at that point, we should be in a good shape to cover those as well.