"the GP will get twice as much money if it adds another 1,000 units that receive the same level of distributions."
I do not think I follow you. I also went back and reread this years annual report and feel better about it. The GP paid out its own incentive rights on that acquisition I was referring to. I have reconvinced myself that the GM does not benefit from lousy acquisitions so I apologize to the GM for any disparaging remarks I might have made.
It looks like if the GM dilutes the junior holders that reduces the per unit distribution and impacts their incentive rights. So that is the way it should be.
So I am ok with this holding again. The7 could do a better job of explaining the incentive rights in the perspectus and annual reports.
If the GM adds more LP units to expand the business their 2% becomes greater but if it dilutes LP units it impacts their incentive rights so that is not a good deal for them if I am interpretting it all correctly.
I may buy some more. I own quite a bit already or at least for me it is quite a bit.
"I'm not sure which deals you are referring to"
Essentially all the aquisitions over the past three years. Many of these came with "unforseen" problems. The deals were paid for with cash and participation rights.
Most of the improvement in cash flow has been from higher coal prices not the acquistions. So essentially we are giving half the price appreciation away to the sellers of the properties NRP has acquired.
Now have those deals been totally at arms length? That is the question. I know nothing specific about those particular deals but the way they work in this (close) industry and many others such as real estate is that there are lots of connections and many ways to compensate someone for making a sweet deal for them. I am concerned about that here and will not increase my position here because of that.
In general the GP here does not own the participation rights. They were given to the sellers of assets. So the GP does not benefit "directly" from this. The GP may own some but not most if I recall correctly. They were just bad deals and I am not sure they were Kosher. Certainly they were not adequately researched because problems showed up immediately. It is managements job to avoid that. In a normal company management would have been fired for what went down here.
But high coal prices have bailed them and investors out. But the potential was far higher and that has been squandered.
I'm not sure which deals you are referring to, but you need to understand that, once the 50% rate is reached, the GP gets rewarded for growing the business without regard to whether the per-share distribution is increased. That is, if NRP has 1,000 units that pay more than the 50% hurdle, the GP will get twice as much money if it adds another 1,000 units that receive the same level of distributions. So all the GP needs to do is find acquisitions that will maintain the current distribution rate, or maybe grow it a little to keep people happy, and the GP will be rewarded disproportionately.
Again, nothing specific about NRP, but that's the way the MLPs operate. Essentially, it's the price you pay for the (relatively) high yield. If the game were not played, you wouldn't have been able to buy your units as cheaply as you did.
Fortunately, with the current finanial difficulties, and the blowups that some MLPs hit this year, it's getting harder for the GPs to play the game. But things will get back to normal, eventually.
debt is the least of their problems. They have given the store away to the special class of stock..over 50% now I believe. Management should serve time in jail for this debacle.
In our society today very little is honest and this company is no exception in my opinion it is run for the insiders. Investors will do ok because of the energy crisis but much of the upside potential has been given away.