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Inergy, L.P. Message Board

bosox_pats 11 posts  |  Last Activity: Jan 11, 2015 7:11 AM Member since: Nov 22, 2010
  • bosox_pats by bosox_pats Jan 11, 2015 7:11 AM Flag

    Maduro of Venezuela in Iran and Saudi over the weekend is interesting. The next OPEC meeting is not until March. Maduro might not make it until March at this oil price. Nigeria, Algeria, Iran among others all have a huge hole in their budgets. Non-Opec members like Russia and to a lesser extent Brazil are getting hammered too. The over-supply issue is only about 1.5 MM barrels on 92 MM barrels of worldwide demand. I wouldn't be surprised to see certain OPEC and non-Opec countries do an end around Saudi and coordinate a supply reduction to stabilize prices.

  • APL declared distribution after close on Friday the 9th, about 2 weeks earlier than normal. The record date for the distribution is also early, on the 21st, but the payment date is about the same as usual, Feb 13th. This is all getting done early in anticipation of the TRGP/ATLS/NGLS/APL deal closing. Imagine all companies involved are fielding comments on their S-4 filings with the SEC. Once the S-4 is declared effective, all companies can issue proxies for the vote on the merger/deal. I believe a statement of information must be issued and be outstanding for at least 20 days before the vote tallied and the merger completed. In my experience, the time between the vote being tallied and the merger is only a couple days.

    Given where the inferred price of the new ATLS SpinCo is trading around $2-3 per unit, I wouldn't be surprised if ATLS adjusts the exchange ratio to have SpinCo trade closer to $10 per unit.

  • Given ATLS LP ownership interest in ARP combined with it's GP IDR arrangement, I did a back of the envelope calculation on any distribution cut at ARP to ATLS. Let's assume they cut the distribution to under the IDR threshold of $0.40 per quarter, or $1.60 annualized, to say $1.50, or $0.375 per quarter. ATLS would earn $0 on it's IDR position. However, given it's LP position, it will still receive roughly $40 MM of cash available to distribute. This would equal about $0.75 annualized per ATLS SpinCo units. They would probably have another $0.05 from non-ARP assets as well. Obviously disappointing relative to the $1.10 recently provided as guidance, but not a disaster, especially if one considers where the inferred value of SpinCo is trading currently at around $3 per unit. At $0.75-0.80 distribution, SpinCo will probably be worth $7 - $10, if not more.

  • Reply to

    The Way Out

    by bosox_pats Dec 6, 2014 9:20 AM
    bosox_pats bosox_pats Dec 9, 2014 6:08 PM Flag

    David

    I was referring to the distribution. The unhedged distribution would be $2.00 annually at current commodity prices at 1X coverage, down from $2.40 - not a disaster You are right the units are trading at $11 down from $20 - a disaster among many.

    Regarding trading APL for lack of a premium. Selling APL to TRGP was brilliant. TRGP is an investment grade credit as a C Corp. APL has large capital needs.

    ATLS received 0.1809 shares of TRGP for each unit of ATLS, $9.12 in cash per unit, and a new unit of Atlas Energy Group (AEG). At the time of the announcement, no one knows where AEG will trade. I will bet somewhere around $10 which is crazy cheap. If it does, you received a premium.

    My average cost in ATLS is $8, when AEG starts trading when-issued, I plan to buy in size......

  • Reply to

    The Way Out

    by bosox_pats Dec 6, 2014 9:20 AM
    bosox_pats bosox_pats Dec 7, 2014 7:24 AM Flag

    David,

    This drop down approach is not something the Cohen's invented. There have been several drop downs put together where the GP interest is used to acquire assets and subsequently dropped down to a LP.

    Regarding cash flow sensitivity, if you took off all the hedges and just priced the commodities at spot, the ARP distribution would fall to $2.00 annually at 1X coverage in 2015. Down but not a disaster.

  • bosox_pats by bosox_pats Dec 6, 2014 9:20 AM Flag

    ATLS contributes some of its GP interest, which is very valuable, to a third party, perhaps private equity. The third party then buys producing assets in a new entity. This entity then drops down the assets to ARP thereby solving ARP's high cost of equity capital for acquisitions. ATLS wins depending on how it is structured as it sends ARP higher into the IDR splits. The third party earns a return on the acquired assets through the GP/IDR arrangement.

    In my opinion, this was the "stay tuned" speech given by Cohen after 3Q conference call. Unfortunately, they can't get this done until the TRGP deal is consummated. In the mean time they can work on a deal. This is the timeline - routine monthly distribution announcements, we find out what the syndicate raise was in January, the TRGP deal closes in 1Q and then we get some creative drop down deal to solve ARP's growth problem. For ATLS, we will probably hear more about AGP in mid-2015. I wouldn't be surprised if they started up another AGP entity to re-enter the midstream space.

  • Reply to

    Sell ARP and buy ATLS? Wash rule?

    by clrodrick Oct 31, 2014 5:35 PM
    bosox_pats bosox_pats Nov 2, 2014 7:58 AM Flag

    I think ATLS will partner with another company or perhaps private equity firm, give up some of the GP to the partner, buy E&P assets, and then start the process of dropping them down into ARP. This has happened elsewhere and given that ARP is locked out of the market in terms of issuing equity, they need to find a form of equity if they want to continue to grow and so the value of the GP increases as the IDRs kick into the high splits. The other form of indirect equity they have is the syndicate business that throws off fee income.

  • Reply to

    bosox what do you think?

    by davidbdc2001 Oct 14, 2014 8:09 AM
    bosox_pats bosox_pats Oct 30, 2014 7:43 PM Flag

    You are creating NewCo for about $7 per share with a $1.25 distribution. If I owned ARP, I would sell it and buy ATLS. You can create the GP of ARP at a yield approaching 20% through ATLS. A no brainer....

  • Reply to

    bosox what do you think?

    by davidbdc2001 Oct 14, 2014 8:09 AM
    bosox_pats bosox_pats Oct 29, 2014 7:44 AM Flag

    David - you bring up some good points. My guess is the IDR holiday from $0.65 - $0.70 that APL enjoys was a factor. My guess this could be 18 months of no upside for ATLS on APL. Also, the fund raising required to build out for PXD alone was daunting. If the junk market collapsed tomorrow, it was a big problem for APL. Selling to a near investment grade entity probably looked appealing and you still get a carry on APL through TRGP if you choose to hold the shares of the C-Corp.

    I wouldn't be surprised if ATLS didn't get involved with a pipeline again!!

    Oddly, I think ARP is the best positioned E&P MLP right now given the syndicate business even though it yields the most. I don't know why you would own ARP however. The best way to play ARP is going to be NewCo through the GP since we are right on the edge of the high splits. Arbitrage players must be having a great time with this 6-way play (TRGP, NGLS, APL, ATLS, ARP & NewCo).

    Pushing the closing until January gives everyone 15 months to deal with the tax issue.

    Should be interesting to see the distributions tonight at ARP & ATLS......

  • Reply to

    bosox what do you think?

    by davidbdc2001 Oct 14, 2014 8:09 AM
    bosox_pats bosox_pats Oct 28, 2014 7:40 PM Flag

    Here's what I think. We are getting about $22 per share in TRGP shares plus $9.12 in cash. We will also get new MLP shares in all the non-pipeline assets including; GP of ARP, 83% GP in AGP, GP & LP interests in ARCX and some oil and gas assets. Company stated that NewCo will distribute $1.25 on annual basis. So, the stub equity is being created in the market at about $7 per unit to yield about 18%. Way to cheap. If the new GP yields 8%, the total package is worth $46 plus we get a step up in basis in NewCo and TRGP shares offset by tax we have to pay.

    Going forward, the syndicate raise is going to be key for ARP. Need at least $200 MM. Effectively a form of equity. We can't issue ARP equity at these prices. So what do they do. I can only speculate but there have been some deals with other firms where they drop down assets into the MLP. I wouldn't be surprised if ATLS gave up some of it's GP interest and partnered with another company, to acquire assets and drop them down into ARP. Again, another form of equity to ARP. Based on the last conference call where Cohen said stay tuned, something like this must be in consideration.

    Interestingly, AGP committed to buy assets in the last Eagle-Ford Asset purchase by ARP. ATLS guaranteed the AGP commitment. The pressure is on to raise assets at AGP - interesting in the context that oil and gas has traded off since this deal was announced.

    When you put all of this in a blender, and indeed it is a complicated mix, ATLS is very cheap at current levels. Any bounce in the commodity price could be the spark to make prices move.

    APL increased it's distribution by $0.01 tonight. My guess is ATLS announces at distribution of $0.52-0.53 tomorrow night.

  • Reply to

    DIVIDEND

    by tomcarr49 Oct 28, 2014 10:01 AM
    bosox_pats bosox_pats Oct 28, 2014 7:07 PM Flag

    APL reported after the close. they bumped the distribution by $0.01 to $0.64 and had coverage of 1.2X for the quarter. ATLS and ARP always announce the day following APL.

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