Parent SandRidge Energy has counter-party risk which the investor must be aware of. SandRidge Permian Trust Common dividends may not be paid if the parent runs into financial difficulty. The trust SEC filings provide the following risk warning: "The subordination of certain trust units held by SandRidge does not assure that you will in fact receive any specified return on your investment in the trust."
As I've told you I did not write that - it was a quote from a seekingalpha article. Why do you keep attributing it to me?
It is correct but I think you are misinterpreting what the author is saying. He is not saying that SD will withhold distributions due to SDT.
I think the point is that SD could get into financial difficulties (including but not limited to counterparty problems) and then be unable to execute the drilling program. If they cannot execute the drilling program then SDT distributions will be impacted.
I see this as true. I do not interpret it to imply that SD could somehow steal distributions due to SDT, simply that SDT distributions are dependent on SD fulfilling their part in the drilling program.
I'm arguing with your original post which is INCORRECT: <<Parent SandRidge Energy has counter-party risk which the investor must be aware of. SandRidge Permian Trust Common dividends may not be paid if the parent runs into financial difficulty.>> This is incorrect, unless their is fraud.
The counter party risks that the trust encounters with their hedges with Morgan Stanley, Goldman Sachs, CME have nothing to do with the subordination clause or risks with SD. You are just mindlessly fishing around for risk and then changing your story. Execution risk now, that was not your original story. Get a clue, do not pay much attention to seeking alpha, they are an ever growing population of wannabes making grist for their resumes.
I still say that SDT and PER are dependent on SD properly executing the drilling program. If, for any reason, SD can't execute the drilling program, SDT and PER are scrwed.
Not sure what the talk of counterparties refers to, but a few possibilities:
-we have hedges. hedges require counterparties,
-SD also has counterparties which may or may not be European banks (I haven't researched it). If for any reason SD gets in financial difficulties (involving their counterparties or not), it may not be able to execute the drilling program. Unlikely but possible.
Also, the Subordination Threshold and Incentive Threshold for PER is lower in SDT. Incentive threshold (PER vs SDT) in 1st qtr. 2013 is .77 vs. .89) So the point at which SD receives 50% of the "cash that exceeds the threshold" is much lower with PER.
Question is whether that will provide any real incentive for SD to get wells drilled, or just more distributions to SD, remains to be seen.
A couple more points:
SDT and PER are more oily than CHKR. CHKR is over 50% gas. They may also have hedging on more of their production.
The reason PER and CHKR have struggled more than SDT may be an issue of supply/demand for shares in these kinds of trusts. Maybe the market has enough of them for now. Which doesn't mean they won't be good income investments.
I would say they are all pretty similar.
I have positions in all 3 but for many people one of them may be enough. There's probably not a whole lot of differentiate them, although PER and CHKR look better values than SDT, just because they debuted during a weaker market.