I’ll see if this post takes.
I just listened to the earnings call. I have criticized NEWT’s disclosures before, but I have to say that they disclose a whole lot on the call. Barry always sounds honest and doesn’t dance around questions and he makes you see the opportunities that NEWT has. So I’m staying.
In no particular order:
1. Net realized gain on controlled investments – NEWT didn’t sell anything. This is dividends received from controlled companies in excess of their earnings. $ 4.9 MM from 1 company, $ 500K from another. They pointed out that they do not count this in adjusted net investment income or earnings, they just include it in the NAV calculation.
2. In the Q&A, they explained that they have reduced their write-down on the retained piece of the SBA loans from 5% to 2.5%. This resulted in a Q4 gain of $ 2.85 MM included in unrealized depreciation on SBA unguaranteed investments. This number has always been a loss, but reducing the write-down percentage caused this line to be a gain in Q4. I have to say that I didn’t catch this in any of the company’s presentations but it must be there because someone asked about it. Again, this does not affect net investment income, it only affects NAV.
3. That reminds me – management’s presentation was pretty long and I figured they wouldn’t take many questions. I was wrong. They kept the call going until everyone’s questions were answered.
4. The SBA loans they are making this year are much smaller in size than in prior years - $ 400K average loan in Q1 so far versus $ 900K last year. Technology makes this possible, I guess. They said smaller loans get better pricing and they are cheaper to process – the SBA requirements for smaller loans are less onerous. In this regard, they talked about coming out with an app for loans in the next 2 weeks. It really sounds like there is a great opportunity here. Loan referrals are running at 40% higher than last year. That’s dollar volume and (my comment now) if the average loans size is dropping, that must mean the number of loans is rising even faster.
There’s more but those were the high points I caught.
At today's WNR price, the value of the deal to NTI unit holders is $ 23.09 plus the 38 cent distribution. So NTI is trading slightly above the offer.
Just about all the refiners are being punished today, and I suspect WNR is being punished for the debt it will take on in the NTI deal. I wouldn't be surprised to see WNR try to renegotiate the price based on "changed market circumstances". I don't trust them.
And even if NTI's price were to tank temporarily, I'd still be in favor of letting the deal die. I think NTI can generate an average annual distribution of at least $ 3 per unit, and that would be worth more to me than the value of the offer.
This has to be the shortest ARLP earnings call I've ever listened to. I need nto check the transcript later to see if my notes were correct.
The distribution cut was not dictated by the lenders. However, ARLP has started discussions with the lenders about renewing the 2017 maturities and it was clear that something needed to be done to get them comfortable. The level of the cut was designed so that the company expects to be able to maintain the new distribution thru 2017 even if prices don't recover.
My question - the coverage ratio for 2016 as a whole is expected to be 1.6X. That understates the ratio because it includes the higher distribution paid in Q1 out of Q4 2015 DCF. By my estimate, the 2016 coverage ratio should be around 1.8X, just considering the new distribution. But they said on the call that if prices don't recover, and they maintain the new distribution thru 2017, the coverage ratio would be 1.2X, and that assumes that they pick up some business from competitors. I need to check the transcript to make sure I've got this right, but that would mean they expect a large drop in 2017 DCF, even if prices stabilize at current levels.
They think 20MM tons of coal production still needs to be cut.
Interesting comment about the BTU and other bankruptcies - customers are concerned about the stability of supply, so this helps ARLP, but the bankruptcies have got lenders scared, so that hurts. In the past, even bankrupt mines could get financing, but that's not true now.
They are happy with the mineral (oil & gas) leases; they have had a little cash flow already but expect it to ramp up in 2017. They do not have an option to continue investing in new properties, so they have to decide if they want to negotiate an extended deal. Those negotiations would start in Q3. They are in the STACK (OK) and the Permian (TX).
Phantom units are very common among MLPs. There are several unanswered tax questions about stock options issued by partnerships, so you don't see employee stock options in MLPs very often.
A phantom unit plan is an arrangement whereby the employer agrees to pay a cash bonus to an employee equal to the market value of a set number of units, if the employee stay with the company for a required length of time. The plan includes top management as well as middle management.
So say you're employed by CLMT as a middle manager. CLMT issues you 1,000 "phantom units", which vest in 2 years. They are called "phantom" because no units are actually issued. CLMT is simply promising to pay you a cash bonus in 2 years equal to the value of 1,000 CLMT units. Assuming you stay with the company for the required 2 years and at the end of the 2-year period CLMT's units are trading at $ 12, the company will pay you a $ 12,000 bonus. If you're lucky and the price is $ 25 at the end, you get a check for $ 25,000. In most cases I have seen, the MLP will also pay you the amount of distributions the 1,000 units would have earned over the 2 years. The money shows up on the employee's W-2 and the MLP gets a tax deduction for the payment.
I have no skin in this game any more, but something occurred to me today. There are 4 refinery MLPs - ALDW, CLMT, CVRR and NTI.
NTI's first deal was announced before the open on Oct 25. Since that open, NTI is up 1.8%, including the distribution that was paid after Oct 25. Over the same period, ALDW is down 26.4%, CLMT is down 41%, and CVRR is down 26.6%. All of those returns include the distributions that were paid during Q4.
NTI's adjusted deal was announced on Dec 22; I don't remember the time of day the announcement was made. But since Dec 22, NTI is down 8.5%, ALDW is down 26.7%. CLMT is down 25.9% and CVRR is down 25.7%. Only CLMT and NTI have announced the upcoming distribution - CLMT held it flat (they always try to maintain a steady distribution) and NTI obviously slashed its distribution. ALDW and CVRR are expected to cut their distributions.
So the 1 benefit of the WNR deal is the $ 15 cash piece of the offer, which has helped to establish a floor for NTI unit price in the current MLP massacre. Without the offer, I suspect we'd be looking at a price in the high teens.
Of course, there's always time for WNR to lower the offer and for NTI's independent directors to recommend that offer as well. I don't know if WNR has signed the financing for the $ 1.4 billion cash portion of the offer.
An agreement reached with seven major health insurers in New York eliminates a stumbling block that barred hepatitis C treatment for scores of patients with early-stage disease, the state attorney general’s office
Eric T. Schneiderman said the new pact ensures that health plans will no longer restricttreatment to people exhibiting only the severest forms ofthe viral infection. Some companies waited
until the disease caused cirrhosis — liver scarring — or other devastating symptoms before coverage kicked in. Beyond cirrhosis, advanced cases of hepatitis C can lead to liver cancer and liver transplantation.
Waiting until advanced disease ensues has become common among insurers nationwide, a complaint lodged against the industry by advocates. “This situation is unique. It’s the only disease in which you have to get really sick before you’re covered. It would never happen with breast cancer. No one would ever say we aren’t
going to cover you because you aren’t sick enough,” said Jill Wolf, a clinical social worker and hepatitis C patient advocate with Caring Ambassadors in Chicago.
Actually, EPD is 40% oil services. Per the 10-K, crude oil pipelines and services generated $ 10.3 billion in revenue in 2015, out of a total of $ 27.0 billion of revenue. In 2014, the oil-related revenue was a higher percentage of the total.
And what I'm about to add has absolutely nothing directly related to EPD, but it's interesting, and it shows that counterparty risk isn't the only thing to worry about with natural gas.
Tallgrass Development (related to TEP/TEGP) just agreed to buy an additional interest in the Rockies Express Pipeline (REX); Credit Suisse wrote up a large article about the deal and they pointed out that a lot of REX's legacy contracts were signed when natural gas prices were much higher and the price they get for transportation is $ 1.50 per mcf. Current recontractings are closer to 30-50 cents per mcf. REX is a very long pipeline and I have no idea how far they were transporting the natural gas. The point I took from the article was just reinforcement of the idea that lower oil & natural gas prices are working their way through the system and everyone in the food chain suffers. REX's hope is that it can increase the volume it carries by enough to offset the drop in price.
Again, just a general comment, not specific to EPD, but it affects everyone.
Anyway, EPD's ability to refinance at incredible good rates and for incredibly long periods of time is a really good sign.
So the good news (for new investors) - ARLP is priced for a complete disaster. I think/hope that everything I have just said is already priced in.
For the past few months, AHGP has been trading at a higher yield than ARLP. This only makes sense if a distribution cut is imminent because AHGP would suffer disproportionately from a cut (IDRs). The yield differential peaked in the first half of March and has now been reduced. I take this to mean that people are a little more comfortable with the distribution being maintained or cut just a little.
If I was aggressive, I would buy ARLP and short AHGP. But I don't short things, so probably I will buy some ARLP with a very short leash.
And if you like ARLP, you really should be buying AHGP. It's the same operation with a higher yield.
I have posted that I track the [price of regular gas at the SuperAmerica station in Minnetonka. Today it dropped to $ 1.49 per gallon. Excluding Federal and MN taxes, that's $ 1.02 per gallon to the station. That is almost 30% less than the station charged for regular on December 31.
I realize it's only 1 station, and it's only regular (no one on gas buddy is reporting the price of mid grade or premium). Also, there are 4 other stations in Minnetonka charging $ 1.49 for regular so maybe this is only a temporary price war.
I sold my NTI a few weeks ago so my interest is pretty academic right now. But I'm not expecting much good news in the earnings release. Maybe intentional, maybe not. But I don't think the people who are against the deal are going to get much ammunition from the call. Good luck, though.
When it comes to MLPs especially, Yahoo's numbers are rarely right. They are all computer driven with no adjustments for different business structures. Their EV/EBITDA number, for example, is way off also.
You lost me. CVRR skipped a distribution? When? I see 76 cents in May, 98 cents in August and $ 1.01 in November, with the current distribution to be announced next week. I think it was UAN that skipped the distribution.
UAN and RNF are fertilizer MLPs (actually, these days just about all my MLPs trade like fertilizer) and they are subject to a completely different business cycle. I was trying to compare NTI to other refiners.
And BTW, ALDW announced today - an 8 cent distribution for Q4, down from 98 cents in November. The units got slammed, no surprise. NTI's 38 cents is looking pretty good in comparison.
What do you expect from a stock/unit that's down 70% in the last year, in a business model (MLPs) that are down about 50% in the last year and in an industry (coal) that's probably down 85% on average over the last year? people are looking for negatives and ARLP has some.
So you're getting about 25% of today's price back as the 2016 distributions, assuming ARLP is able to maintain them. But what about the other 75% of your investment - how comfortable are you with getting that back, plus a profit? ARLP's contracted sales have declined seriously, and now (Q4) more customers are deferring contracted purchases. This is apparently due to utilities having high coal inventories because of warm weather, but it spooked ARLP enough to project the low end of 2016 sales to be equal to today's contracted 2016 sales - no incremental sales at all. As to next year (2017), 1 year ago, ARLP had contracted for the sale of 29 MM tons of coal in 2016 (1 year out from that time); in the year since then, ARLP has only been able to add about 5 MM tons of contracted volume. Today, the contracted volume for 2017 is 19 MM tons. You do the math. Unless things get a lot better really soon, 2017 is going to be really bad.
And then, how much are you willing to bet that there won't be another democrat in the White House next year? That certainly won't help matters.
I finally threw in the towel on ARLP and bought some back as a bet that they wouldn't cut the distribution. I was right and made a few bucks. Then I got greedy and only sold half my units so once again I'm sitting with a loss, although it isn't very large.
Anyway, at some point MLPs and maybe ARLP are a buy. But I'm willing to wait until I see some proof of a recovery before I commit more money.
Here's the lender problem as I see it. The bankers have access to information that NRP has chosen not to make public. For instance, NRP has declined to estimate cash flow for 2016 because of the difficult situation in the various energy markets. That won't work for a lender, especially a prospective lender. They will want some assurances that they will be repaid. So I have to assume NRP has shared or will share non-public information with them. So far, that hasn't helped in refinancing loans, but it's too soon to say.
Take the oil & gas loan - it was due in 2019, with loan limits being recomputed every 6 months. The existing loan limit, determined last October, was $ 85 MM. They just agreed to cut the limit to $ 50 MM by October and they agreed to a higher interest rate. The only reason I can see for that agreement is that it's better (for NRP) than the existing agreement.
From the outside, this makes little sense - in Oct 2015, WTI averaged around $ 45/barrel and it's currently around $ 40. Whatever Bakken oil goes for, I assume the trend is similar. So from the outside, I would not have expected another 40% drop in the oil & gas loan limit. The bankers must have access to other information that sounds worse than what is publicly available (that sounds hard to believe).
So I think things are worse than investors realize.
Well, the results/guidance/outlook for coal were worse than expected. Cut the distribution 35% and cut AHGP's distribution by 43%. Maybe the market will react favorably - yield is now 12% with 2X coverage. Maybe the reaction will be negative - why couldn't management see what was happening in late January when they maintained the distribution? There's a comment in the earnings release about the competitive situation being tough; I guess their bankrupt or nearly bankrupt competitors (think FELP) are accepting really low prices just to keep the mines open.
As to me, I'm sticking to my idea that ARLP is the best managed and best positioned company is a really unpopular industry. They are still making decent money in an ugly market.
I did a quick read of the release and didn't see any comment about new sales contracts. Maybe I missed it, but I'm sure this will come up on the call. What won't come up on the call is the presidential campaigns. If it becomes apparent that either Clinton or Sanders will win, I'd stay away.
Sure I do. My numbers may be slightly off but the answer bis this - NRP owns approximately 200 MM tons of coal reserves around the Hillsboro/Deer Run mine. FELP itself owns about 600 MM additional tons of reserves at the mine, and I think Chris Cline owns another billion tons. I don't think Mr Cline's reserves are adjacent or developed.
The story is actually interesting. Back in 2002, Mr Cline bought the mineral reserves from the Town of Hillsboro for pennies. I think he paid something like $ 10 million for 2 billion tons of undeveloped reserves, plus he agreed to build a mine and bring jobs to the town. He spent $ 300 MM or more building the mine. Most of the cost of the mine was funded by NRP, which bought 200 MM tons of reserves from Mr. Cline for $ 255 MM, which was used to build the mine.
BTW, the following is the best (and probably the most useless) investing advice you will get today - Mr. Cline is by far the best investor in coal over the last 20 years. If you read that he is buying something, you should follow him. If you read that he is selling something, you should stay as far away from whatever he's selling as you can. Just ask NRP (the 2 Gatling mines), Mr. Murray (control of FELP), and maybe SXCP (the Louisiana coal handling terminal).
I don't know the layout of the mine so I don't know if mining could be switched from one portion of the reserves to another. But if the mine is in operation, NRP at the very least gets $ 30 MM per year in minimum royalties. Until it re-opens, though, NRP is getting just about nothing.
What company does an earnings release and doesn't give Q4 numbers? So we have to pull out the Q3 release and subtract that from the 12 month numbers they just released to figure out what happened in Q4? It looks like Q4 was pretty good - net increase in BV of $ 1.40 and net investment income of 4 cents. Although with the change in the number of shares outstanding, it's hard to tell the per-share numbers.
But why do they make things hard? I assume tomorrow's call will have slides that break down Q4 separately; at least I hope so.
Among Endo’s branded products, management is particularly excited about Xiaflex, currently used to treat Dupuytren’s contracture and Peyronie’s disease, conditions related to collagen disorders, but it could have more than a dozen additional uses.
Xiaflex, which posted 2015 sales of $158 million, could soon become Endo’s best seller. Its current No. 1 product, Voltaren Gel, a nonsteroidal anti-inflammatory for the relief of joint pain, had $207 million in sales last year. But it faces competition from a generic version launched last month. Endo’s management also is excited about Belbuca, a treatment for chronic pain that has just been launched.
Good for BSTC, if the prediction is good.
It's too confusing to post when 1 thread contains multiple topics.
So to Vodobass - there's no explanation for today's trading (so far), with ARLP up and AHGP down. Probably just that AHGP has little volume.
You are absolutely right. I just finished my second post and I see you have said what I am about to post, just a lot more directly.
Anyway, my second comment on the results: Some debt squeezes. NRP’s oil & gas debt limitation gets redetermined every 6 months. From $ 137 MM in 2014 to $ 105 MM in April 2015 to $ 88 MM in October 2015. Each time, NRP has to repay some of the debt.
Which leads to the comment that NRP is not buying back any of the 2018 bonds. No buybacks in 2015.
Which leads to the most disappointing thing I have seen in the 10-K so far. NRP only paid down $ 91 MM of net debt in 2015. $ 81 MM was just regular principal amortization on long-term debt. $ 25 MM was the oil & gas debt that had to be repaid because the lenders reduced the maximum debt allowable on the oil properties. They borrowed a few dollars so the net reduction in debt was only $ 91 MM.
From recollection, last April NRP announced its new plan to reduce debt by $ 500 MM by the end of 2017. That reduction included $ 25 MM of pay downs in Q1 of 2015, so the projected paydown was $ 170 MM per year. They barely reached half of the goal in 2015, and I don’t think operations are getting any better in 2016.
Keep in mind that NRP was paying $ 43 MM per Q in distributions just before the plan was adopted. In 2015, the reduced distribution saved NRP $ 32 MM in each of May and August and another $ 38 MM in November. That’s $ 100 MM of savings just on the distribution, and they were only able to pay down $ 91 MM of debt? That sounds crazy, considering how high the reported DCF is.
They say: we have determined that the cash savings from the distribution cuts and our cost reduction efforts will not be sufficient to meet our deleveraging objectives and have determined to sell certain assets to help meet these objectives. While we have closed two asset sale transactions, if we are unable to complete additional asset sales and conditions in the commodity markets continue to deteriorate, our liquidity and our ability to comply with the financial and other restrictive covenants contained in our debt agreements will be adversely affected.
I say: better accelerate the asset sales.