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Arlington Asset Investment Corp. Message Board

jrad52 107 posts  |  Last Activity: May 23, 2015 3:55 PM Member since: Jul 25, 1999
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  • Reply to

    Litigation results

    by thinnau May 22, 2015 2:50 PM
    jrad52 jrad52 May 23, 2015 3:55 PM Flag

    Not for a long time. The breach only started on April 15 (the effective date of the EPA's new MATS rule) so probably the litigation won't even start for several months. On its Q4 earnings call, ARLP said it expected a resolution mid-2016. They didn't update this matter on the Q1 call, so that's the best answer anyone has so far.

  • Reply to

    Nothing but bad news for coal

    by ayscuew May 22, 2015 6:37 AM
    jrad52 jrad52 May 23, 2015 8:42 AM Flag

    Thanks. I hope your holiday goes well also.

    Patriot isn't that big a lessee from NRP any more. NRP only discloses 2 mines that are leased to Patriot - DD Sheppard which produced 640,000 tons in 2014 (down from over 2 million tons per year not that long ago) and Dingess Rum, which is partly leased to Patriot and partly to ANR. Dingess Rum is a bigger deal (2014 production was 2.9 million tons) but we can't know how much of that is Patriot.

    And of course, forget production - we don't know if Patriot is paying minimum royalties in excess of what they would owe based on production.

    So splitting Dingess Rum 50/50 as a guess, Patriot accounts for 2 millino tons of production, out of total production of 50 million tons on all of NRP's properties.

    The one to watch out for is ANR, which is a much bigger deal for NRP.

  • Reply to

    Nothing but bad news for coal

    by ayscuew May 22, 2015 6:37 AM
    jrad52 jrad52 May 22, 2015 7:34 PM Flag

    I listened to the presentation; I heard him say that APP thermal coal was in a secular decline (no surprise there) and that NRP would benefit from its focus on the Illinois Basin. I didn't hear him predict mine closures, although one could easily read that into the "secular decline" comment, and his statement that the IB would benefit.

    NRP is basically irrelevant now. If you believe that NRP intends to use its cash flow to pay down debt (which he repeated several times) and since the current administration will be in place until early 2017 and no one can know who will succeed Mr. Obama, I don't see much chance of a pick-up in business or any raise in the distribution until after 2017. So I can't see any reason to own it.

    And just to repeat my comments about how annoying NRP management is - first, Mr. Hogan referred to the recent distribution cut as a "distribution change". The slide showed the facts, but he won't call it a cut. How can you trust management that tries to gloss over bad facts? And second, Mr. Hogan mentioned and explained the nature of NRP's coal leases, stressing the benefit of the minimum royalties. His point was that even as coal prices dropped, NRP's exposure to those drops was limited by the minimum royalties.

    Great, but how about telling investors what those minimums are? How about telling investors how long the contracts last, and thereby expose NRP to further declines in revenues? Even if they can't tell investors about specific contracts, they could give the information in the aggregate. Without knowing that information, how can anyone intelligently put a value on NRP?

    FWIW, I think NRP eventually trades to a 10% - 11% yield, or about $ 3.50. And then Mr. Robertson and his funds try to buy the company.

  • Reply to

    Nothing but bad news for coal

    by ayscuew May 22, 2015 6:37 AM
    jrad52 jrad52 May 22, 2015 1:05 PM Flag

    I'm confused. Why is this bad news? Haven't you been saying that mines need to be closed and production lowered so that prices can improve?

    I only read the WSJ story so I'm probably missing pieces of the whole picture. But the WSJ story said the largest part of the layoffs would come from closing the Monongalia County mine, which Murray bought from CNX in December 2013. That mine was running low on reserves so it was going to close in the near future in any event, I think. It was also idled a few months ago, so the closing just makes that permanent. And it looks like that was a union mine, and I suspect that had something to do with the decision to close it.

    The industry needs a lot more mines to be closed, particularly in CAPP.

    There is 1 (remotely possible) silver lining for NRP in the closing of these mines. Murray just bought control of FELP, which has the lowest cost mines in the Eastern US, several of which use reserves leased from NRP. Maybe Murray is taking the opportunity to shift production to the lower cost FELP mines from the CAPP mines that it is closing. That might help NRP. Not enough to make it a good investment yet, but it might help.

    FWIW.

  • Reply to

    Question

    by jsb1949 May 15, 2015 11:45 AM
    jrad52 jrad52 May 21, 2015 7:44 PM Flag

    Neither. VOXX and Eyelock have a joint venture to make and distribute the products. I don't see where VOXX has disclosed its percentage ownership in the JV, but if you go to the various slide presentations that VOXX has done, the arrangement is referred to as a JV.

  • Reply to

    should i buy some of this?

    by stultswill May 15, 2015 11:51 AM
    jrad52 jrad52 May 15, 2015 12:07 PM Flag

    No drop. JUst a stock split/dividend, where the class a shareholders are getting an equivalent number of class c shares. So I think it's basically a 2 for 1 split.

    Confusing disclosure, though.

  • Reply to

    dividend

    by mysonchino May 10, 2015 2:50 PM
    jrad52 jrad52 May 12, 2015 3:19 PM Flag

    NEWT has not said what will happen to the regular dividend after the special dividend is paid. But common sense says the regular dividend will be reduced pro rata. Of course, I hope it will increase as the company grows, but I don't think they can possibly maintain the $ 1.82 current rate.

    Why? NEWT has said that the special dividend will be somewhere around $ 4.50 - $ 4.75 per share. The tax rules require that at least 20% of the dividend must be paid in cash, and the company can issue stock for the remaining portion of the dividend. On the last call, Barry mentioned the 20% cash requirement and said that they might pay a bit more than 20% but most of the dividend would be paid in stock.

    So after the special, the company's income will be spread out over about 20% additional shares. So unless the company's taxable income grows by at least 20%, they can't pay the same regular dividend on all the shares.

    But that's just my opinion. The company ahsn't said anything about the matter.

  • Reply to

    A Peak at OCIR's K-1

    by me_jade May 10, 2015 5:48 PM
    jrad52 jrad52 May 12, 2015 2:15 PM Flag

    Welcome to the club. Last week I posted a bunch of messages, mostly on the NRP board, and they disappeared after 2 or 3 seconds. I was given advice that Yahoo wasn't allowing posts from aliases - you had to use your actual Yahoo account name. Don't bother trying that, it didn't work for me.

    A yahoo help blog told gave me several pieces of advice, the last of which was to delete cookies and something else from my history. All that did was make me re-enter all my passwords on every site I visit. It did nothing for my ability to post.

    Someone else told me to create another Yahoo account and post from there. That worked for maybe a half hour (but only if I kept my posts to twitter length) then those posts starting disappearing too.

    So I gave up posting for several days and I read a post on Investor Village saying that Yahoo had fixed its problem and people could post again. It turns out I wasn't the only one having the problem.

    And now things are back to normal until the next Yahoo snafu.

    My suggestion - try really short posts. Maybe type your real message in Word, and then copy it onto the board, with a separate post for each paragraph. That was part of my temporary solution with the new Yahoo account.

    Good luck.

  • Reply to

    A Peak at OCIR's K-1

    by me_jade May 10, 2015 5:48 PM
    jrad52 jrad52 May 12, 2015 9:34 AM Flag

    I can't tell why or if the percentages change. I have never bothered with that portion of the K-1.

    But I didn't explain the 754 election effect properly, I guess. The extra tax depreciation deduction you get from the 754 election is included in your line 1 income or loss, so you won't see the number separately stated. BTW, there is another IRC section that applies - section 704(b) and (c) that also has a disproportionate effect on the allocation of taxable income. For a new MLP like OCIR, that will also have the effect of lowering the amount of taxable income on your K-1's line 1.

    There is a simpler way to think of it, though. Per OCIR's 2014 10-K, it had GAAP income of $ 44.5 million. You would normally expect taxable income to differ from GAAP because of things like tax depreciation versus book depreciation, but you wouldn't expect the GAAP profit to turn into a large tax loss simply because of the "normal" tax differences like MACRS. There is something else going on that is causing the taxable income number to be a loss - that something else is (mostly) the 754 deduction.

    If you're interested, take a look at pages 195 and 196 of OCIR's original prospectus, where they discuss the 754 election and its effects.

    And BTW, the original prospectus estimated that the taxable income to be allocated to each partner through 2016 would be 50% or less of the distributions. In my case, the taxable income was 100% less than the distributions. Like I said, the percentage will be different for each partner.

    Hope this helps/.

  • Reply to

    A Peak at OCIR's K-1

    by me_jade May 10, 2015 5:48 PM
    jrad52 jrad52 May 11, 2015 5:03 PM Flag

    As I said in my first post, for me the tax deferred return of capital was 100% in 2014 (except for literally $ 1 of interest income). I suspect this would be true for most investors in OCIR but I can't say for sure.

    And thanks for the NRP comment. I found OCIR at its IPO because NRP owned the other 49% of the underlying soda ash business.

  • Reply to

    A Peak at OCIR's K-1

    by me_jade May 10, 2015 5:48 PM
    jrad52 jrad52 May 11, 2015 2:51 PM Flag

    I'll give you the information you asked for but it won't tell you a whole lot.

    I owned 2,000 OCIR units at the start of 2014 and sold 1,000 of them in February. So I owned 1,000 untis for the entire year and 2,000 in January.

    My K-1 showed losses on line 1 and 19, with $ 1 of interest income. The total losses ran to about $ 1,100.

    Now, why this may not matter. Like most MLPs, OCIR has made what's called a Section 754 election. This election allows OCIR to compute a depreciation deduction for each partner based on the amount that each partner paid for his/her units. So the more you pay, the larger the deduction, and conversely, the less you pay, the lower the deduction. When you sell your units, this deduction gets recaptured as ordinary gain.

    So you could ask 10 unit holders what their K-1s showed, and you could legitimately get 10 different answers.

    I paid an average price of $ 18 for my units. So if you were to buy today at $ 24 your line 1 - 19 losses would presumably be larger than mine.

    Hope this helps.

  • Reply to

    Very negative report from NRP management

    by ayscuew May 8, 2015 7:56 AM
    jrad52 jrad52 May 9, 2015 12:42 PM Flag

    I'm told Yahoo fixed its problems. We'll see.

    If you're referring to the Outlook discussion in the 10-Q, it's not a whole lot different from the Outlook discussion in the 10-K filed a few months ago. Maybe a little worse, but not by much.

  • Reply to

    Finally got a plus!

    by ayscuew Apr 30, 2015 8:48 AM
    jrad52 jrad52 Apr 30, 2015 5:30 PM Flag

    Don't have an opinion on the Q1 numbers yet but I have 1 data point for you and it's ugly. Whiting Petroleum (NRP's partner and the operator of the oil properties) released Q1 numbers yesterday. In Q4, Whiting reported revenue per BOE of $ 60, basically the same as NRP. In Q1, the average realized price dropped to $ 38 per BOE. Whiting increased production by about 25% in Q1 vs Q4, so there was an offset. Hopefully, NRP shared in the increased production because the $ 22 per BOE drop will hurt. I'm guessing the GAAP depletion charge won't drop a whole lot, so NRP's Q1 GAAP numbers from oil should be a good deal lower than Q4. DCF from oil should also drop but not by as much.

  • The question is who do they think ARLP will outperform - the rest of the coal miners, or the market in general. ARLP could outperform the rest of the miners by taking longer to die (poor joke about coal mining stocks). I hope that Cowen thinks the outperformance is more than that.

  • Reply to

    Finally got a plus!

    by ayscuew Apr 30, 2015 8:48 AM
    jrad52 jrad52 Apr 30, 2015 3:38 PM Flag

    As you probably know by now, ANR actually lost 79 cents per share from operations, just about what was expected. ANR booked a profit by buying back a bunch of its debt at 60 cents on the dollar; this resulted in a $ 365 MM reduction in debt and a similar amount of gain. That caused the GAAP profit.

    In late 2014, ANR closed part of a mine that is leased from NRP. This year, ANR closed another few mines but I can't tell if any of them are NRP properties. Since I don't own ANR or NRP, I'm not interested enough to find out if any of the properties belong to NRP.

    Even ARLP, my only coal mining investment, is having problems in this environment. They were profitable enough - probably the only profitable miner left (plus maybe FELP, which reports next week) - but they had nothing remotely good to say on their call. Spot prices are tanking, and ANR even says that contract prices for 2016 are dropping to the mid $ 40s. Each miner has different prices because of location and quality, but the news just keeps getting uglier.

    But everyone already knew that. The question is whether we can outlast the downturn. The other question is whether the next president will be any different for coal.

  • Reply to

    Earnings call

    by jrad52 Apr 29, 2015 10:54 AM
    jrad52 jrad52 Apr 29, 2015 10:58 AM Flag

    They don't see any relief from exports over the next 2 or 3 years. They don't see any relief from greater utility demand for coal especially with the current president. Relief can only come from higher natural gas prices.

    They think production and demand in the Illinois Basin and Northern APP are largely in balance; maybe there's 5 MM tons too much production. CAPP production has to drop by 20 MM tons to be in balance.

    Distribution growth will have to be reconsidered if IB coal prices stay where they are for a continued time (duh!).

    Is ARLP willing to do a big M&A deal - they will consider everything but they don't see any opportunities at present. Later when someone asked again about consolidation in the industry, they pointed out that the obvious consolidators (the big producers) have way too much debt, making deals harder.

    Pretty uneventful.

  • jrad52 by jrad52 Apr 29, 2015 10:54 AM Flag

    No great surprises, but no one asked about the status of the customer trying to break the contract.

    2 topics that were raised by analysts several times on the call - the Murray/FELP deal and whether ARLP and AHGP should combine.

    Mr. Craft had a throwaway comment that I thought was interesting. He said that bringing Murray into FELP "might bring some discipline" to the business. Sort of a slap at Chris Cline, I would think. Why did Chris Cline (mostly) sell out ? Mr. Craft doesn't know, but he said that at one time, the Illinois Basin could grow to a 200 MM tons/year area and people don't think that any longer, so maybe Mr. Cline wanted to take some chips off the table.

    Why keep ARLP/AHGP separate? Flexibility - maybe do financing at the AHGP level (the Murray deal did that) or maybe grow AHGP in other non-coal areas, like midstream. I thought the answers were nonsense, but Mr. Craft controls the GP so he calls the shots. I would guess the real reason is price - Mr. Craft's ownership is mostly in AHGP, and there isn't any significant premium to AHGP's price just now, so why should he do any combination if he's not dealing from a position of strength?

    Other comments - Spot prices in both IB and NAPP dropped 10-15% (my question - I assume that's from Q4 pricing, but they were not specific). No surprise there.

    They hope that fewer rigs will lead to lower natural gas production which could lead to higher natural gas prices (to the $ 4 range) by the 2016/2017 time frame. (my comment - if natural gas stays at $ 2.50 for another year, the devastation we have already seen in coal will look like a walk in the park compared to what things will look like.) Why hasn't production dropped yet? Because producers have hedges that make production profitable. Wait until the hedges run off before you will see production declines.

    More in the next post.

  • jrad52 jrad52 Apr 28, 2015 8:06 PM Flag

    To say ARLP's performance was better than the rest of the coal industry is faint praise, indeed.

    I'm happy with the distribution increase. I'd have been satisfied if they held it flat. I recently watched (from the sidelines, fortunately) as NRP cut its distribution 75% after cutting it 36% a year ago. So anything other than a cut is good news to me.

    Because of ARLP's contract situation, the Q1 sales, EBITDA etc were pretty much fixed from the start. They could have been better if not for the weather-related problems, but that would just have been icing on the cake.

    There is a downside to the results, though. It appears ARLP did not contract to sell a single additional ton of coal in the Q. The contracted amounts look to be identical to the amounts at December 31. On the other hand, that indicates that no other customer is trying to break its contracts with ARLP. Last Q, when ARLP disclosed the contract dispute, they removed that customer's sales totals from the contracted sales amounts. So since the contracted amounts are the same as in December, I assume that means no one else is trying to break its contract. In today's coal market, that counts as good news.

    A year ago with the Q1 2014 earnings release, ARLP announced that it had contracted for 29 MM tons in 2015. Today, they say that have 28.9 MM tons contracted for 2016. So I guess they will contract for the rest of their 2016 production as 2015 progresses. They may to cut production again to match up better with sales. But ARLP/AHGP looks like the only definite survivor in coal-land. Maybe FELP, too, but its contract situation is scary and I don't know anything about Murray.

  • jrad52 by jrad52 Apr 28, 2015 6:56 PM Flag

    Considering the environment, a really good quarter at first glance. I'll have to read more and listen to tomorrow's call. I didn't see anything about the contract dispute or whether any other customers were trying to break their contracts.

  • Reply to

    Bottom ?

    by wareham2620 Apr 27, 2015 10:28 AM
    jrad52 jrad52 Apr 27, 2015 12:20 PM Flag

    Let's see what management has to say tomorrow. In the meantime, like you, I sure hope this is a bottom.

    I think Q1 will be OK, but it's the commentary about the business, the next few years and White Oak that matters. I wonder if they've sold any new coal since December.

    I can't see any of the commentary being at all positive, but right now the units are trading like it's the end of coal. Mostly, I hope they don't say anything about being interested in buying more coal assets because of the downturn.

    FWIW.

AI
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