OT Bluedream, the NTI distribution was not based on cash available generated
in the two months of the third quarter. You need to read the distribution announcement very carefully to find out where the money actually came from. His is the break down
RIDGEFIELD, Conn., Nov. 12, 2012 /PRNewswire/ -- Northern Tier Energy LP and its subsidiaries (NYSE: NTI) ("Northern Tier Energy") today reported consolidated earnings for the third quarter of 2012. In addition, Northern Tier Energy announced a prorated cash distribution to unit holders of $1.48 per unit.
(Note that the float is approx 91 Mil units, so paying $1.48 = $136 Mil ).
But notice the difference in the statements of Operating Income, Cash available for distribution, and Cash provided by operating activities reported in the Div declaration announcement.
" Northern Tier Energy reported operating income of $199.4 million for the third quarter of 2012, an increase of $33.7 million compared to the third quarter of 2011. "
" Prorated cash available for distribution totaled $136.1 million for the third quarter 2012 "
" Cash provided by operating activities for the third quarter of 2012 was $80.0 million compared to $61.1 million for the third quarter of 2011. The cash provided in the 2012 period relates primarily to the strength of the Refining segment's operating results partially offset by $132.0 million of payments made out of the IPO proceeds to settle deferred derivative obligations and to settle the contingent consideration arrangements. "
So where is the cash coming from for the $1.48 Distribution, i.e.,$136 Mil paid vs $80 Mil cash available? Take a look at
" Liquidity and Capital Spending
Northern Tier Energy's primary sources of liquidity are cash generated from operating activities and its asset backed revolving credit facility (the "ABL Facility"). As of September 30, 2012, the Company's cash on hand and availability under the ABL Facility amounted to $491 million as compared to $232 million as of December 31, 2011 and $148 million as of the closing date of the Marathon Acquisition on December 1, 2010. The September 30, 2012 cash on hand balance of $323.5 million includes the net use of cash related to the completion of Northern Tier Energy LP's IPO. "
Aha. They had cash available beyond the current two month's of earnings that were used for their distribution, and I suspect that they made it large, so they could do the SO now underway at a high price. From the prospectus, a full year's worth of distributions was only estimated at $2.65 per unit:
From the Prospectus:
"We project that we will be able to pay aggregate distributions of $2.65 per unit for the twelve months ending June 30, 2013 and a distribution of $0.65 per unit for the three months ending September 30, 2013. In order to pay these projected distributions, we must generate approximately $245.9 million of available cash in the twelve months ending June 30, 2013 and $61.8 million of available cash in the three months ending September 30, 2013. However, for the years ended December 31, 2011 and March 31, 2012, on a pro forma basis, we would have generated $11.7 million and $9.1 million, respectively, of available cash. The increases in projected available cash compared to the forecasted available cash for the twelve months ending June 30, 2013 is primarily driven by the lower projected realized losses from derivative activities
Drew, I would not short NTI for at least three reasons.
First, NTI will have plenty of cash on hand from good earnings and the IPO, and will not want to embarrass the underwriters for the SO and soil themselves with a disappointingly low distribution so soon after the SO.
Second, earnings have been cyclically high, but just today it was reported that the Seaway pipeline reversed to flow bottlenecked oil at Cushing to the Gulf has been reduced from flowing 400k BPD to 175K ( http://www.bloomberg.com/news/2013-01-23/oil-falls-from-4-month-high-as-inventories-seen-rising.html ), so the cost of crude is down again, and crack spreads ought stay high till the pipeline flow is restored, and even then there is yet back up u7ntil producers cut back.
Shoirting is tricky not so much because of failure logically to figure out price direction, but because market makers seeing a short position to squeeze will take advantage of weak hands; likewise, if folks place a bunch of stop loss orders, the market makers can swing the price down and buy cheap.
My comments may be helpful for a longer term perspective, but not for stock trading.
So let me get this straight: estimated distributions are around $.65 per Q, that's about 9% annually at current PPS, not bad. Are you thinking distributions would be reduced in the future? What's not to like to this 9% yielder?
Igster, that's a fair Q. The refiners are notorious for erratic earnings, to include periods of losing money, so the three refinery MLP IPOs (NTI, ALDW, and CVRR) set their IPO unit prices to yield an estimated 19% for the first year (a very high yield) to induce buyers for this volatile, risky business.
With the crack spreads unusually high, NTI and ALDW have been touted to be paying with yields over 20%, and the retail crowd has been buying with that high yield expectation. It the yield is suddenly realized to be more like 9% instead of 20%, there would be a big, mad selloff-- and I think that's the next major move for both NTI and ALDW (the cost for ALDW's crude supplies, which had been cheaper than set by WTI, are soon to go higher that WTI as pipes are developing to bring bottelnecked crude fro the Permian Basin andother nearby fields directly to the Gulf).
Re NTI, recall that its IPO price this past summer was $14, so the current unit trading price around $24 is based on enlarged, really inflated, expectations for profit that's unlikely to be sustained. Also consider the SO now underway from NTI insiders that raises no money for NTI-- they are not buying, but selling to a public expecting high yield. If $24 were a fair price, the SO would be to buy back from the market, not to sell to it.