You're right. In total, WNR is going to pay $ 15 plus the .2986 of a WNR share times the number of NTI units outstanding. The mix of consideration that each individual NTI unit holder gets may vary, but not by much. Suppose NTI has 100 MM units outstanding, including employee restricted units (the actual number is a bit less, but 100 MM is a nice round number). In total WNR is going to pay $ 1.5 billion in cash plus 29,860,000 WNR shares to do the deal. If WNR's stock price tanks, any NTI unit holder with a brain will elect to get cash. But that will exceed the $ 1.5 billion of total cash that WNR agreed to pay, so proration kicks in. Conversely, assume WNR's stock skyrockets to $ 60. Then every NTI unit holder will ask for all stock. Again, this will exceed the maximum that WNR agreed to pay, so proration kicks in.
It is likely that the choice between stock and cash won't be as dramatic as those 2 extremes. So maybe some NTI unitholders will get slightly more than others because of their election. But in total, the maximums will apply.
To finish, 1 more piece of bad news. I think the lower-of-cost-or-market charge that NTI will report for Q4 will be in the neighborhood of $ 40 - $ 50 million. I was actually surprised NTI did not hold back more for working capital reserves. Maybe the charge won't be as big as I think.
Anyway, Q4 was bad. But it is only 1 Q, and the drop in the crack spread was known at the time WNR made its offer and the "independent" board members approved it. They gave some disclosure as to why they approved the deal. I haven't read the entire thing because I sold my NTI once I saw the modified offer and thought it was garbage, but that it would go thru anyway.
Anyway, just 3 things that struck me in what they disclosed. First, they projected out NTI's distributions from 2016 thru 2020, and basically they averaged $ 3 per year, whether they used management's prices or historical prices. 2016 was the low year (some shutdown time, I think), but the average was $ 3 per year or so.
I would be happy with $ 3 per year in distributions as opposed to the WNR offer. (BTW, no one can project 5 years of a refinery's operations with any accuracy, I realize that.) Which leads me to point 2.
2. I didn't see anywhere in what they released that they considered simply not doing any deal. All of the work was done to determine if WNR's offer was "fair"; I didn't see any work at all on the question of whether not doing any deal was the best course of action or not. That failure bothers me.
and 3, something that I have posted before. Q4 is traditionally a weaker Q for refineries - gasoline usage drops with the bad weather (especially in MN) and prices tend to drop along with demand. So WNR timed its offer carefully - it did nothing during the blow-out quarters of Q2 and Q3, but as soon as Q4 started, it made its offer. At that time, it knew Q4 would be nothing to write home about and I think Q1 will be similar. So WNR took advantage. I think this will happen with more MLPs soon.
I posted this earlier today but my post disappeared. So from memory -
MPC reported today. Q4 operating income from refining, marketing and the retail stores dropped to $ 342 million from $ 1.7 billion in Q3 2015. Included in that drop was a LIFO inventory charge of $ 370 million, so before the charge, operating income dropped 58% quarter-over-quarter.
TSO reported (yesterday, I think). Same story. Q4 operating income was $ 179 million down from $ 1.274 billion in Q3 of 2015. Again, there was a LIFO charge of $ 276 million in Q4 2015 so before the charge, operating income dropped 64% Q-over-Q. TSO is not a fair comparison - I think there was a lot of downtime in the 2015 Q. But however you look at it, TSO's profit dropped quite a bit from Q3.
In Q3 of 2015 the Gulf Coast crack spread averaged $ 17.12 per barrel. In Q4, it averaged $ 9.27. This spread does not apply to NTI, but directionally, the spread was down a lot for all refiners in Q4.
I track the regular gas price at 1 SuperAmerica station, in Minnetonka. Not because I think it is anything special but I like the name of the town and figured the station would give some direction as to gas prices. At the start of Q4, the net price of gas at the station (net of federal and state taxes) was $ 1.88 per gallon. On Dec 31, the net price was $ 1.40, a drop of 25.5%. And yes, the price dropped pretty steadily over the Q. The price of WTI dropped 17.6% in Q4, per the eia, so NTI's margins on gasoline got squeezed. And my understanding is that gasoline is NTI's most profitable product, which is why they are doing the work to shift more production from asphalt to gasoline.
Finally, per the Canadian PSAC site, the savings from using WCS stayed around $ 14 per barrel (vs WTI) in Q4.
So overall, I was expecting a significant drop in NTI's Q4 earnings and distribution. We got the distribution news today, and I think earnings will be down similarly.
1 more post.
The 2018 bonds are publicly traded. Like many bonds, volume is sporadic - some days not much at all, other days, decent volume for a $ 425 MM bond issue. Recently, volume has been high (for NRP bonds) but with bonds it's hard to tell exactly. Often they report a single transaction twice or even 3 times, as the broker finds bonds to fill an order.
And 1 off topic thing - Yahoo message boards are still strange. I got an email this AM from Yahoo saying there was a response to my post about Cliffs selling the mines that it leases from NRP. But there's no response here. Maybe the guy deleted his post and it's not Yahoo's fault. Just strange.
Welcome aboard. Good luck with ARLP; I also own it but I don't expect to stick around long.
But I think some of your numbers are off a little. ARLP's guidance for 2016 net income is between $ 1.20 and $ 2.13 - $ 230 MM - $ 300 MM, less the IDRs gets you to the EPS I just stated. So it's only a 7 multiple at the high end of the range they gave. I hope that comes true but that isn't what they gave as guidance. And because they split their income with AHGP, I don't get to a 22% ROIC for 2016 based on their guidance, either.
And while the distribution is covered by DCF, I'm not sure I would call the coverage "ample". Last year the coverage ratio was around 1.6X, which was great. This year the ratio is expected to drop to 1.1X or 1.2X. Both numbers are decent, and considering it's coal, management should be congratulated. But "ample coverage"? Depends on what you mean by ample, I guess.
ARLP is the best performing coal miner by far. But now it needs 3 things - 1. the weather to get real cold, real fast, so utilities use up some of their coal inventories. 2. Natural gas prices to rise. and 3. A different party in the White House in 2017. That's why I;m not a long-term holder just now.
To be fair, they're going to release 2015 earnings and 2016 guidance in a little more than a week. I suspect they don't feel that they can talk to anyone just now.
DRI has 1,534 locations. The locations that were not dropped down to FCPT were eliminated because (1) some are operating at a revenue level that does not support enough rent to meet FCPT's criteria, (2) some locations don't have enough of an operating history to tell if they will be able to support the rent needed by FCPT, (3) some locations may be closed and relocated so they were eliminated, (4) some locations do not satisfy REIT requirements (no idea what that means), (5) some locations are already leased from other landlords so DRI didn't own them, (6) some locations are subject to ground leases (DRI owns the building but not the land). They may have mentioned other reasons but those are the ones I got. There is an article on Seeking Alpha about this.
As to the flow of the fixed assets, DRI transferred $ 835 MM of net fixed assets (after accumulated depreciation) to FCPT. DRI also did a bunch of sale leasebacks in the Nov quarter, including the headquarters building, generating proceeds of $ 350 MM. I don't follow DRI so I don't know the accounting treatment for those sales, but I suspect the rest of the change you're looking for can be found there.
I think today's announcement goes a long way towards improving NEWT's disclosures. They recognize that they have an unusual BDC model and seem to want investors to get better understanding of it.
Now if they could only take a second look at the SEC filing that discloses the number of shares that Barry owns, and check to make sure it includes the special dividend shares (I think it doesn't) that he received recently, I'd be really happy.
I missed this story when it first came out. Or at least I don't remember posting about it on this board.
CLF was NRP's biggest met coal lessee. On December 22, CLF sold its 2 mines (both leased from NRP) to Seneca Coal, basically just to take the realted liabilities off CLF's books. No cash changed hands in the deal. CLF stands to receive up to $ 50 MM in the future if the mines meet certain hurdles.
The good news for NRP is that Seneca intends to continue operating the mines. The news is unclear on this point - it says Seneca plans on producing 4.4 MM tons of met coal in 2016, but it also talks about Seneca "re-balancing" the production among its various mines, so I'm not sure of the production that will come from these 2 mines. 2014 production at the 2 mines was 4.8 MM tons.
Just a strange kicker - the story refers to Seneca as "Seneca Coal Resources LLC, an affiliate of ERP Compliant Fuels LLC, the Virginia-based environmental group". Environmental group? Not sure of that. Later in the story they say ERP is actively marketing the sale of ‘Compliant Fuel,’ which bundles reforestation carbon credits with coal sales to reduce the rate of growth in atmospheric carbon dioxide,” according to the PR Newswire report. “
If you have a few hours to waste, try to reconcile how many NEWT shares Barry Sloane owns. It doesn't really matter, but I always try to track insider buys and sells in companies that I invest in.
Last May in the proxy, the company stated that Barry owned 1,000,356 shares. From the disclosure, it looked like these were all "owned" shares, not options that he might or might not exercise.
This tied into his Form 4 filings until August, when suddenly without a filing that I can find, his shares dropped to 933,143. His subsequent filings worked off this lower number and he apparently gifted shares to his children but still showed them as being indirectly owned by Barry, and his total shares owned grew to 963,000. Fine. Then he did a Form 4 filing that showed he received 116,456 shares in the special dividend, but his total shares owned did not change. Then he also did a 13D filing that showed he owns 963,000 shares. So either this is another example of the company not knowing or caring about proper disclosure, or else Barry sold the 116,456 special dividend shares and didn't tell anyone.
I assume the stock price will recover if the company pays the $ 1.50 dividend this year. When it does, I'm gone. I'm willing to cut small companies some slack on their disclosures, but NEWT is in a class all its own.
BTW, they reported similar to ARLP. Production down in Q4 due to warm weather, resulting in customer deferrals. Their projected tons sold for 2016 is just about what they have already contracted - they have contracts for 4.8 MM tons, and their projected sales for 2016 are between 4.4 MM and 5.2 MM tons because they're concerned that some of their contracted tons may get pushed out. Cutting back on costs, no surprise.
CNXC by itself is very small because it only owns 20% of CNX's thermal coal operations. So on an overall basis, the operation is just a little smaller than ARLP. And all NAPP.
I'm not recommending it; I bought a few CNXC units in anticipation of their maintaining the distribution. They did maintain the distribution, I got a little pop and now I'm getting out. It's really illiquid. But they are reinforcing what ARLP said.
SXCP is an MLP that mostly processes met coal into coke. They reported Q4 earnings today and 1 point could be relevant to NRP. SXCP repurchased $ 46 MM of its debt at a $ 10 MM discount and recorded a $ 10 MM gain on the repurchase.
I din't recommend SXCP; I'm just pointing out that some companies are able to repurchase their debt at a discount. I have no idea if NRP will do the same, but it's clear that other MLPs are doing this.
I think there's 1 items you're missing.
You pick up the 1.8 MM shares issued in the special dividend but you don't pick up any related book value. I think you should be adding $ 25 MM to equity, bring the NAV to slightly over $ 13 per share.
As you pointed out, when NEWT declared the special, they reduced equity for the $ 34 MM they were required to pay out (that's the $ 2.69 per share amount). But NEWT only paid cash of $ 9.2 MM for the special - the rest of the dividend was funded by the 1.8 MM shares that were issued. So $ 25 MM of the amount they accrued for the dividend should be added back to equity. That raises the per share NAV to a little over $ 13.
I think the company said this in one of their presentations as a hypothetical because at that time, they were not sure what percentage of the special would be paid in cash or stock. But frankly, the company's disclosures over the BDC changeover have been very confusing.
One of the problems that NEWT has to address is that its business model does not fit the traditional BDC format. All of NEWT's net income comes from securitizing the SBA loans, and this gain does not show up in "net investment income" on the income statement - it shows up below that line. So if you look at the Seeking Alpha or Investor Village sites, the BDC investors won't even look at NEWT because the dividend isn't being funded by NII and they think the dividend can't be maintained. It doesn't help to point out that NEWT's business model is similar to mortgage REITs that used "gain on sale" accounting because those mREITs generally turned into disasters.
That reduction is for 1 quarter. Almost a dollar drop in the distribution on an annual basis. The price reaction doesn't seem so crazy.
I can't see the post-split units dropping that far. Look, everything about coal is ugly right now. But as the property owner, NRP will get some amount of royalties. And the Ciner operation is doing well - CINR just went ex today, so I assume that NRP has already received its cash distribution for Q4 of about $ 11 MM and the future of that operation is OK. The aggregates business, I believe, does not rely on the oil & gas business for any significant portion of its sales. It will suffer in a recession, but otherwise should do OK. I think NRP overpaid for VantaCore but its still has value. The oil & gas properties aren't worth much but they should produce a few dollars of income.
In 2015, the coal royalties should have produced something in the area of $ 150 MM of gross income, with very low direct cash expenses against that income. 2016 looks like a bigger disaster for coal, based on what ARLP and CNX has said and the royalties have been dropping around 20% per year. So maybe 2016 is $ 125 MM or maybe as low #$%$ 110 MM - I think it depends on FELP's mines. There will be cash flow to help with the interest payments,
But as bad as things look, the big issue for NRP is whether it can repay or refinance its debt over the next 2-3 years and avoid triggering any covenant defaults along the way. Maybe, maybe not. But I think they have some more time than you're giving them credit for.
Don't get me wrong - I wouldn't buy NRP at this time. Every reverse split I've been involved in has turned out badly (except for reverse splits associated with spin offs). So I think NRP's price will drop as more people give up the ghost. But I can't see the $ 1 range for a while.
Might be interesting to compare 2016 projections with ARLP. I think they will say the same thing ARLP did.
CNXC is NAPP exclusively. They cut projected 2016 production a few weeks ago and it sounded starnge, but it fits in with what ARLP said. CNXC has 4.8 MM tons contracted and sold for 2016, but their guidance is for sales between 4.4 MM and 5.2 MM tons. Apparently they have the same problems with customer deferrals of deliveries that ARLP has.
Also when they made that announcement, they said things got worse in December, with the warm weather.
I do not recommend buying CNXC; it's just interesting to look for comparisons. And CNXC is pretty strong, for a coal miner. I might buy a few units as a gamble before the announcement for a very short term trade. The units yield about 28%. Half the units are subordinated so they suffer any cut first, so I'm pretty sure they can cover the public units distribution with DCF to spare. Since CNXC recently IPO'd, I suspect they won't want to cut the distribution on the public units yet. Also Greenlight Capital, which owns half of the publicly-traded units, probably won't be too happy with a cut just yet. Mr. Einhorn has already taken a lot of grief for his involvement in CNX and CNXC.