The WSJ has an article in today's paper - TV Broadcasters Poised to Turn Back Tough FCC Rule
In the omnibus spending bill that Congress is expected to consider this week is a provision grandfathering in of station sharing agreements that were in place before the FCC proposed new rules in 2014. The FCC rules would require companies like SBGI to unwind their station sharing agreements if they violated the limits on the number of stations a broadcaster can own. The FCC rule would require unwinding the deals within 2 years, but it looks like Congress will override the FCC.
This should be helpful for SBGI since it has many of these agreements that would otherwise have to be unwound.
I just did some reading and found that CALPERS owned 354,400 units in NRP as of September 30. They bought most of those units within the last 12 months, so they didn't do so well with this investment.
Anyway, CALPERS is required under the new California law to dispose of all coal-related investments. So they are dumping their units and this is causing NRP's free fall. When they finish selling, NRP should bounce right back. :-)
Actually, CALPERS did own those NRP units and probably is selling them now. I wonder who recommended this investment to CALPERS, and whether he still has a job. I would guess it's an indexing thing - CALPERS owns stock in just about every company you can think of.
I guess they are trying to sell Teachers Village? They talk about a possible gain if the sale goes through (no mention of an amount) but a sale would certainly simplify BRT's financials.
It might be worth buying a few shares just to watch what happens.
Actually, the crack spread is dropping and has been dropping all Q4. Using the Gulf Coast spread, the average this Q has been $ 9.16 versus $ 16.28 in Q3.
I don't have access to the PADD numbers so this is just directional. But Super America's gasoline prices have dropped much more than oil has this Q (as is usual in Q4), so NTI's crack spread is presumably also dropping.
Only 1 bond is publicly traded - 9.125% Senior Notes due 2018 CUSIP 63902MAB4. It traded yesterday at 67 cents on the dollar, with a yield to maturity of 26%. That yield tells you something about the risk, I guess.
So far this year, they are averaging $ 11.5 MM per Q in cash distributions. Their share of the accrued income is slightly more - about $ 12 MM per Q.
So call it about $ 48 MM per year in accrued income, of which $ 45 MM gets distributed to NRP.
The tax issue is really strange but it's going to apply to a lot of people that buy MLPs at today's prices.
To start, I don't think NRP management cares at all about this issue - they are trying to survive and if they need to cut the distribution again, they know how to do that. And I think they will, if necessary.
The tax issue - when you buy an MLP and pay a price that is higher than the MLP's underlying tax basis in its assets, the MLP reports a tax depreciation deduction and includes it on your K-1 at year end. So if you bought NRP 2 years ago at $ 30 and the tax basis per unit was $ 10, NRP would compute a tax depreciation deduction on the $ 20 difference. They would probably use a 15-year life for the depreciation, so they would allocate a tax deprecitaion deduction of $ 1.33 per unit to you. That is the biggest reason why most MLPs show losses on the K-1.
But this works in the other direction as well, and that is what will happen to people that are buying today. Say NRP's tax basis in its assets is $ 5.10 per unit now (forget the Q3 impairment charge; impairment charges are usually not deductible for tax purposes unitl you sell the asset or it becomes completely worthless). But you bought today at $ 1.10. NRP will now compute a negative tax depreciation deduction (that means taxable income) based on the $ 4 difference and allocate that income to you on your K-1.
This only applies to people that bought recently; people that bought in at higher prices earlier are not affected.
So unless NRP generates a real taxable loss on the sale of something, people that bought in recently will have taxable income greater than their share of NRP's actual income, if that makes any sense.
And as I said, NRP's management won't care about this at all. Hopefully they will do whatever is best for NRP.
I'll explain my tax comment in a separate post because taxes make people's eyes glaze over. But I think NRP doesn't care about investors taxes just now; they are worried about survival and if eliminating the distribution is the right move for NRP, I'm sure they will do it.
First my calculations: my starting point is close to yours - $ 55 MM quarterly cash flow, $ 15 MM for total cap ex, $ 20 MM for regular debt repayments, $ 5 MM for distributions, leaves them with $ 15 MM free cash flow per Q so far this year.
But that’s where we split. First, 2015 DCF includes about $ 5 MM per Q of nonrecurring stuff – asset sales and working capital adjustments. Plus, coal still accounts for 65% of NRP’s DCF, depending on how you allocate interest expense. YTD, coal revenues are down almost 20% from 2014 and I think a similar drop is coming next year. If FELP files for bankruptcy and gives up the Deer Run mine, the damage will be much worse. And I think the oil & gas income will die. Since the majority of the cap ex is for oil & gas, this won’t create much damage on the DCF line, I think. And interest expense is going up, with the revolver extension. So my estimate of NRP’s 2016 DCF cushion is basically none. I think they can meet the required debt repayments but not much more.
NRP has $ 105 MM of debt principal coming due in 2016 and $ 355 MM coming due in 2017, then $ 505 MM coming due in 2018. For 2016 and 2017, $ 81 MM of the debt principal is just regular quarterly/semi-annual debt payments and they have to fund them. The rest is revolver amounts due and they can be extended. But the extension of the revolver date from 2016 to 2017 cost quite a bit in fees and higher interest and I suspect the same would apply to any future extensions. Further, unless things improve a lot, extending the 2017 debt repayments would just move them to 2018 when the big money comes due.
So I think NRP limps along and hopes for a recovery in coal or it sells something.
Mostly I was just commenting about FELP's situation. The risk that I see is that if FELP is forced into bankruptcy (very unlikely at this point, I think) they can pick and choose which leases they want to continue with NRP and which ones they want to walk away from. That puts the Deer Run property at risk.
But NRP hasn't traded on its fundamentals in ages. It trades as though every last possible risk was a certainty, and that NRP won't be able to pay down enough debt before the 2018 debt comes due.
FELP is NRP's biggest lessee. A few months back, Mr. Cline sold a controlling interest in the GP to Murray Energy. FELP has a ridiculous amount of debt, and the bond holders filed suit, claiming that the Murray deal constituted a change in control of FELP and that change in control required FELP to offer to redeem the 2021 bonds at 101% of par. FELP obviously doesn't have the money to do this.
The judge in the case has not issued a judgment yet, but he has issued an opinion that FELP is required to offer to redeem the bonds. FELP is now negotiating with the bond holders and has announced that it will suspend the distribution on the common units. I suspect they will work this out between FELP and the bond holders because FELP cannot redeem the bonds, and the bond holders wouldn't get much in bankruptcy.
2 points - First, same as with the worthless mines that Mr. Cline sold to NRP (as well as the problem with the Illinois Basin reserves he sold to NRP), you don't want to be on the other side of any deal with him. If he's selling, you don't want to be the buyer. And 2, more headaches for NRP.
Everyone and his brother will be presenting at the WF Conference tomorrow or Wednesday. My bet is that no one pays the slightest attention to NRP. Considering that NRP is a micro cap at this point and all the major MLPs have tanked, I guess that the big guys will get all the attention.
I know the presentation will be the same as last month's presentation. NRP put the slides up for tomorrow's presentation and they are the same.
If NRP ever recovers (hopefully), you can switch to Johnnie Walker Black.
Funny thing about getting older. I just checked to make sure JW Black is still premium, and I see that JW now comes in Green, Gold and Blue, all of which are better/more expensive than Black. I never knew they existed - I guess they started after I stopped drinking much. (And if this year's MLP debacle hasn't driven me to drink, I guess nothing will.)
So if NRP ever really recovers, you can switch to the really expensive stuff, whatever the color.
The meeting is sponsored by Wells Fargo, and it consists of a bunch of presentations by companies in the energy business. Generally, each company does a 20 minute introduction to itself and then leaves the floor open to questions. In between presentations, attendees might be able to meet privately with the company executives. And often you can listen in on the internet - just go thru NRP's website - Investor Relations - Presentations. Just remember to get the time zone right.
I've listened to NRP's presentations before and they are generally a waste of time (this isn't specific to NRP; most of the presentations are wastes of time). Generally the presentation is just an overall introduction to the company, with no real hard information. And most of the time, the attendees either aren't interested in NRP or have never heard of the company because they don't ask a lot of questions. To be fair, the last NRP presentation I listened to had a few decent questions, but that was unusual.
NRP has already posted its presentation slides on its website and they are the same slides as the last presentation.
So while Wells Fargo is sponsoring the event, it's not like NRP is doing a presentation to the bank as a lender.
ARLP isn't anywhere near a record low. On a split-adjusted basis, it traded around $ 6 per unit back in 2002 and stayed below $ 10 for a few years back then.
Yes, they projected an 8% drop in revenue, but they also projected a similar 8% drop in costs to mine due to switches to lower costs mines. Q4 GAAP earnings should be bad because they will have to write down some of the assets at mines they are closing, but DCF should still be fine. 2016 should certainly be worse than 2015 but not by much (on a DCF basis).
Everything depends on post-2016 contracting next year and who wins the White House. On a shorter-term basis, the issue will be how low are the costs at White Oak/Hamilton.
And I wouldn't buy ARLP yet. I wouldn't buy any MLP just now - the sentiment is almost as bad as it was in 2008. I don't know if it's tax loss harvesting but whatever it is, it's incredibly ugly. And being related to coal gives people another reason to sell.
but the drop from $ 800 billion all happened in 2008. At 12/31/07, AUM was $ 800.390 billion, and at 12/31/08 AUM had dropped to $ 461.951 billion, mostly due to the stock/bond market meltdowns. AB has pretty much kept its AUM in the $ 400 billion - $ 500 billion range ever since then.
So why now should the price fall apart? The AUM story is old news. Has anything happened more recently? Credit Suisse has a report out yesterday with no real discussion of AB, just a Neutral rating. a $ 27 target price and 7% expected yield for 2016. Is there anything else out there in the last day or 2?
The discussion in the article is mostly global, not domestic. There is no specific discussion of NTI (or WNR, for that matter) in the article itself, but in the charts they say they are dropping their projections for NTI's Q4 results by a lot and also dropping their projections a little for the next 2 years. CS had been estimating $ 106 MM for Q4 EBITDA; now thye are at $ 57 MM, a drop of 46%. They have dropped their 2016 and 2017 EBITDA projections by 4% and 10%, respectively. They have dropped their 12-month target price from $ 34 to $ 30.
CS has also dropped the Q4, 2016 and 2017 EBITDA estimates for just about every other refiner as well (except CVRR) including WNR, but NTI's projected drops are the largest.
To state the obvious, I would ignore the 2016 and especially 2017 projections - they are guesses based on CS' models. But if CS is typical of the analysts, everyone will be projecting narrower domestic crude spreads for sourcing. That would hurt across the board.