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StoneMor Partners L.P. Message Board

  • norrishappy norrishappy Nov 18, 2009 9:49 PM Flag

    10.25%?

    What the heck is management thinking? Just wrong.

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    • i have been watching this to put it in my roth. sounds like msybe i should go some where eles. but then again-this is something everyone of us will use one way or the other. would those of you that has held this over time buy if you were me? thanks for your help.

      • 2 Replies to arrrrrrrough
      • It sounds like there are many on this board who know more about the specifics of this company and finance than me. Probably like you, I was attracted to this a few years ago by the high-yield and the idea of a niche business, with constant business and a roll-up type strategy. Last year's bear market taught me that illiquid stocks with high-yields that get weighed down by debt covenants can result in dividend eliminations and stock price destruction. In other words, the risks are high if the cashflow can't support the distribution.

        One can speculate as to whether their business will hold up or whether the recession will impact spending decisions on funerals and burials. One thing that strikes me when you compare this to other MLPs, especially the pipeline and energy sectors, is that the goal of the MLP model is to pay out most of the cashflow and grow through acquisitions by issuing more and more debt and equity. This works well AS LONG as the debt and equity is not mispriced so that the equity doesn't get overly diluted and the debt isn't too expensive. Others have spoken about the interest on the recently issued debt. From looking at their filings, it doesn't look like their margins are large enough to support that kind of debt. I also didn't like the hit in to their trusts from their equity portfolio. We've had a 50% rally in stocks and the equity component of their trusts is still showing losses -- what happens if stocks decline again?

        So I had a number of questions about holding on to this and I think I've come to the conclusion that the business is too opaque and there are too many other issues to warrant holding. It's hard to give up the yield especially when yield is hard to find, but if I learned anything, it is don't be a yield hog. It's not really worth the extra 1 or 2% to take on more risk.

      • I would not recommend STON for any account at this time.

        I have no idea what your risk profile is but it is very high if you are looking at a partnership that had to price public debt at 10.75%.
        If you are willing to take risk then you might want to look at CMO. It is like AGNC in many respects. I held a bunch of AGNC and did not hold on long enough. But that is another story.
        It is a mortgage REIT but the portfolio is government backed variable mortgages. So the problems with the default crises are moot. Also, the high percentage of variable mortgages avoids the significant interest rate risk. Yields are very low. Rate risk is measured by duration which is very high with these record low yields. So the variable keep the rate risk low and the government security keeps lenders from yanking the funding.
        You might also want to consider IVR. This is a W Ross creation which has taken advantage of basically free money from the government to leverage a portfolio of debt. I believe about half is currently government backed mortgages. Ross is often on the business channel and has been right about the melt down as well as a solid long term record. There is a whole bunch of inefficiency in the commercial real estate debt markets and if we get some politicos that have a mature adult energy policy running the government this could be a homer. But, no one knows the future.
        Would I put either of these as my only source of income? No.
        Further down the risk scale if the exchange trade fund at Vanguard. The telecom fund VOX has a 4% SEC yield. It is stuffed with two of my favorites T and VZ. Further I think there should be solid dividend growth.
        All investments have some type of risk but I would say all three have far less than STON at this time.

    • Beats the 13% they will be paying on the new shares they are floating.

      • 1 Reply to lessbs
      • Yea but having to pay an effective 11%+ implies they are already overleveraged and very risky.
        It may of cost more but issuing more equity might have lowered the impression of leverage risk. Many of the property reits were able to issue new very dilutive equity but the share price went up –
        This is simply amateurish. Someone is making a mint in fees.

    • IIRC, when they came out of the box in 2004 the original notes were 8% weren't they? Personally, I am just glad they got the deal done. This means that they have stabilized the capital structure. Plus the new notes are unsecured, so we do not have to worry about collateral restrictions, etc.

      I would have prefered this to be done more cheaply, but it is done and now the company can move forward without worrying about balance sheet stability.

      • 2 Replies to trubulator12345
      • If management were not so aggressive on the unknown acquisitions the balance sheet would be stable.
        The real cost of the debt on a yield to maturity is 10.75%. After fees and commissions it is 11%+ to the company. Junk bonds are yielding in the 8% range so this is a huge bath. This rate is certainly much higher than the expected returns on the trust accounts so reflects negative operating leverage.
        I had read in the last quarterly filing that management was able to line up both the credit line and an acquisition facility. So I do not understand why the balance sheet required stabilization. I believed this was proof that the value in the trust accounts was real.
        So this new issuance of both equity and debt is wildly expensive. If it was done to stabilize the balance sheet then management has been completely dishonest in their disclosure. If it was done to support an acquisition it is simply irresponsibly expensive.
        This is not good.

      • Market down, STON is up!

    • Oh silly me. What is another 50bp between buddies. Unbelievable.

 
STON
27.32+0.1000(+0.37%)Jan 23 4:02 PMEST

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