From DTN/The Progressive Farmer - OMAHA (DTN), this week -- The tide has turned this spring in corn and soybean prices, leaving farmers with unexpected marketing opportunities, and also possibly nagging worries about selling too early in a market rally.
Jeff Hainline, chairman of Advance Trading, Inc. in Bloomington, Illinois, said corn hitting $4 per bushel was the big number which sparked aggressive new-crop sales. "Above $4 they don't have a paradigm for what to expect, so it has slowed down," Hainline said.
The problem was that the oil & gas venture has been a disaster for NRP from day 1, and I don't think they could afford to continue the investment. NRP reported $ 25 MM of DCF from oil & gas in 2015 for example. But that includes $ 4 MM of royalty income, which NRP has kept, and $ 4 MM of nonrecurring asset sales. So continuing DCF was $ 17 MM. Against this, NRP was required to invest $ 22 MM in new drilling costs and also pay some interest expense. So on a fully-loaded basis, NRP lost money. Q1 2016 was similar, with basically a break even fully-loaded DCF. And in the last 10-Q, NRP disclosed that it would probably be in default on the oil & gas loan before it came due in 2017. So they had to do something.
All of NRP's assets (I'm not sure about CIner) are already securing the company's other debt so they can't get funding from other sources to repay the oil & gas debt. So I think a sale was necessary. Terrible timing, but if the timing were better, NRP wouldn't be in the mess in the first place.
Other than Ciner, I don't think any of NRP's assets could be sold today at a reasonable price, so they did what they had to.
And all of this is reflected in the unit price already.
NRP announced the sale of all of its non-operated working interests in the Bakken. This would include the Sanish Field (acquired in 2014 for $ 340 MM), as well as the 2013 acquisitions from Abraxas and Sundance for $ 67 MM. So the starting point of NRP’s investment is about $ 407 MM. Since then, NRP invested an additional $ 63 MM in capital expenditures on these fields which brings the total investment to $ 470 MM.
Against this, NRP received $ 64 MM in operating income, bringing its cash cost down to $ 406 MM.
2 points – first, as hoops pointed out, about $ 100 MM of the cost was funded thru the issuance of 8.5 MM NRP units at $ 12 (before selling commissions). And second, NRP wrote off most of its investment for GAAP purposes last year, so I would think the sale will produce a gain for GAAP purposes.
NRP treats 100% of the proceeds from asset sales as distributable cash flow. So DCF will be through the roof in Q3 when the sale closes. Take that with a grain of salt.
The EIA numbers have 2 significant problems, and I think the quandl numbers come from the EIA so they may have the same problems.
The smaller problem is that the EIA only tracks the spot prices of coal for each region. I have been following the EIA site for several years on coal prices and the volume on the spot market is minimal. ARLP has said for years that the spot prices aren't indicative of real current prices because most utility coal is sold under longer-term contracts. So I would just take the prices as indications of what new sale contracts might call for.
The bigger problem (at least with regard to NRP) is that the regional prices are all for steam coal, not met coal. And met coal is very important to NRP. The EIA gives historical met coal prices but I don't think they give current prices.
Credit Suisse has a report out today on steel makes and it's very bullish. That might be helping met coal producers today. But part of the CS bullishness is based on the shutdown of a lot of blast furnace steel mills, which use met coal. So I think it's a mixed bag - higher prices but lower coal volumes.
This is confusing. Any extension is good news, but maybe there’s something else going on that they aren’t telling us.
This loan extension involves NRP (Operating) LLC, which is NRP’s subsidiary that owns everything except the Williston Basin oil & gas operations. The Williston Basin oil & gas operations are the ones that NRP has said it is trying to sell, but that isn’t affected by this loan extension.
The loan extension has a provision that says that NRP (Operating) can sell up to $ 300 MM of assets, as long as 75% of the sales proceeds are used to pay down debt. But I don’t remember NRP say it’s trying to sell anything other than the Williston Basis operations. Am I forgetting something? Or maybe NRP has something else it’s trying to sell?
The loan extension seems to be coming at a high price, but NRP isn’t in a very good bargaining position. At the end of Q1, NRP owed $ 290 MM on this revolver, all of which comes due in October 2017. The extension cuts the limit to $ 260 MM immediately, so I guess NRP had to repay $ 30 MM immediately to get the deal done. NRP has to repay another $ 50 MM by December 2016, another $ 30 MM by June 2017, and another $ 30 MM by December 2017. The balance of the debt is extended until June 2018. So the “extension” actually accelerates $ 110 MM of repayments and extends the balance of the loan for 9 months past its original maturity. I would bet that on a weighted average basis, there has been no extension. But by stretching out repayments over another year, it makes things a little easier for NRP. And for this (plus a relaxing of the covenants), the interest rate is raised about 1%.
When I first read the 8-K, I thought the lender was allowing NRP to use sales proceeds to repay the 9.125% bonds out of the proceeds of asset sales, but I was wrong. They can only repay NRP (Operating)’s senior loans, and that doesn’t include the publicly-traded debt.
don't think so. Media General exited the newspaper business in 2012 when it sold the operation to Berkshire Hathaway, so it's purely a TV station operator now. Plus, it's in the middle of being acquired by Nexstar. No bidding war from MEG. And Warren doesn't do bidding wars.
TPUB released the results of the shareholder vote. Just like GCI said, and contrary to TPUB's news release, excluding Ferro's and related shares, the majority of unrelated shares voted to withhold approval of the directors. But Ferro doesn't care - he will take a dying newspaper business, move it into a capital-intensive new neighborhood and drag us along for the ride.
And when the stock is back down far enough, he'll buy us out.
Several reasons why I don';t think that would work - first, TPUB's board adopted a poison pill earlier this month which effectively limits anyone from buying more than 20% of the company's stock. After the recent private placement, 20% would be around 7 MM shares. Buying 7 MM shares over a short period of time would drive the price up, reducing the benefit of the plan to catch a quick profit. And finally, TPUB is a small cap. If a buyer were able to buy 7 MM sharers, his max profit would be around $ 20 - 25 MM (and probably a lot less, depending on how much they would have to pay) based on GCI's offer and Friday's price. I don't see that as being large enough to interest a big player like Icahn, with the downside risk that Ferro continues to refuse to sell and the stock drops back to $ 8.
FWIW. I don't see the shareholder vote this week changing the situation. Very frustrating.
I own TPUB shares in 2 accounts. GCI has sent me 2 separate mailings about Withholding votes for the TPUB directors for each account. I have already voted to Withhold the votes; that's not my point. MY point is that GCI is still spending a few dollars, at least, in its effort to buy TPUB.
It is extremely confusing. The first part of the auction, the reverse auction whereby the TV stations offer to sell their spectrum to the FCC, starts May 31 and (I think) is over in a few days. But I'm not sure we'll hear anything at that time. The FCC needs to repackage the spectrum and then conduct a forward auction to sell the spectrum to wireless communications companies. It's that second auction that will raise the money to pay the TV stations, and I don't think a timeline has been set for that auction yet.
So maybe (or maybe not) we hear something in June or else not until the second auction ends, which I think is much later this year.
Like I said, it's confusing.
Look for the MLP board. If you aren't a member, go to Boards, then look under Community Boards. The MLP board is usually the first or second one listed. And the post has a lot of comments/responses, so you'll have to go back to earlier today - the topic is called something like TEP Secondary coming?
Please note that I copied the Hedgeye story from someone on Investor Village. If I'm going to plagiarize something, I should give credit.
Hedgeye published a note on TEP/TEGP. That's why it tanked.
Tallgrass Energy is a ridiculous case of “MLP Math” gone wild.
Seduced by rapid, near-term distribution growth, investors have bid the LP, TEP, and the GP, TEGP, up to a combined market cap of $6.8B, wildly above the equity value of the assets, which we estimate to be ~$1.0B. Combined, TEP and TEGP have 80 - 90% downside to our fair value estimate.
We expect TEP to cut its distribution in late 2019 or early 2020 – to zero or near zero – when above-market contracts on its Pony Express Pipeline (Pony) and Rockies Express Pipeline (REX) expire. Even when paying no distributions, we forecast TEP to be over 7x levered in 2020 when EBITDA falls off a cliff.
The recent rise in TEP and TEGP unit prices makes for a compelling entry point on the short side; consider the following: in the last month alone, TEP and TEGP’s market values have increased by ~$850MM and ~$1.1B, respectively, since announcing that TEP would buy 25% of REX from SRE on April 28th for $440MM cash, which TEP financed with a private placement of 2.4MM new units and RCF debt. PSX had a right of first refusal on this deal and declined to participate. The only other significant change to Tallgrass’ businesses over this time was the restructuring of REX’s contract with ECA, which was NPV neutral, as disclosed in the May 2nd FERC filing. Incredibly, the combined market value of TEP and TEGP has increased by more than $1.9B despite the Company creating no value whatsoever. All that has occurred is a value transfer from TEP to TEGP, as the new 2.4MM TEP units and the $0.09/unit increase in TEP’s quarterly distribution results in an incremental ~$30MM of annual IDR fees to TEGP.
Investors would be wise to do a bit more due diligence on TEP and TEGP other than just look at the current distribution yield and guided distribution growth. We have done that work. We know the contracts, shippers, competitors, partners, market dynamics, and market rates for all of Tallgrass’ core assets. In fact, we’ve had several, extensive conversations with Tallgrass’ own customers, and they tell a very different story than the Tallgrass management team does.
Tallgrass is a disaster waiting to happen, and the downside is massive. We recommend shorts in both TEP and TEGP.
We will publish a full report on Thursday morning, May 26th, and hold a conference call to discuss the key points of the thesis on Thursday at 10am EST. All Hedgeye Energy subscribers will receive the report and conference call dial-in info on Thursday morning before the market open.
Back in March, the Dept of Commerce proposed 266% tariffs on Chinese cold-rolled steel, but the exact tariff wouldn't be set until this summer.
Reuters and CNN announced 2 days ago that the Dept of Commerce was proposing to raise the tariffs to 500%. I don't see that the WS Journal or NY Times reported this so I'm not sure of Reuters/CNN's source for the story.
Apparently the issue is China's continuing to rebate money to Chinese steel companies for exports.
China has protested the proposal and I don't know where it goes from here.
and I can't blame them.
Actually there was 1 comment I found in the annual report. In the "Risk Factors" section, one of the risks was listed as "the effects of the Federal Communications Commission’s (FCC’s) National Broadband Plan and incentive auction and the potential repacking of our broadcasting spectrum within a limited time frame;"
Not much use but they did mention the auction.
I am surprised that they didn't say anything else, at least in the liquidity section. I know the FCC has imposed a gag rule so they can't say much. But as a public company, SBGI has a duty to talk about things that could materially impact the business. And SBGI's management on one of the 2015 earnings calls talked quite a bit about the possible benefits of participating in the auction. So it could be significant and they should have said something, even if only to say "The FCC won't let us talk about the auction." Saying nothing at all is misleading, unless SBGI decided not to participate in any significant way.
You're right about this item being small. NRP's exposure to FELP is mostly collecting the minimum royalties. If FELP can get Hillsboro running again, and get current with the minimums, no one would even notice the effect of the sale/leaseback of equipment. I had just forgotten that NRP had other business with FELP.
The Sugar Camp mine, which has most of the equipment under lease, is FELP's largest and even in bankruptcy someone will take over the lease. Unlike the reserves, the new miner might have some leverage to renegotiate the deal, but I don't think the exposure is all that much. It's different for the Hillsboro and Macoupin mines which are really down o production.
It gets more confusing. FELP also disclosed sale/leaseback transactions with NRP at its Macoupin mine and I didn't see that in the NRP disclosure. I'm at work right now so this will have to wait, but the full amount really is around $ 100 million, ignoring the big reserves sale/leaseback at Hillsboro.
That's one of the problems with NRP - they don't disclose much. So when FELP went public, they disclosed far more information about the FELP/NRP transactions that NRP ever did, and FELP still does. Same thing with CINR and Ciner Wyoming. CINR told us much more about the debt-financed distribution that NRP received in 2014 than NRP did. So sometimes I'm looking at information from other sources and trying to tie it into NRP's disclosures.
But jrummell, you're right. I should have tried to tie in the different disclosures before posting. But I also thought that's part of what happens on the board - someone posts something and maybe someone else corrects them. I often post mistakes but it's certainly not intentional.
From the 10-K:
The Partnership owns and leases rail load out and associated facilities to Foresight Energy at Foresight Energy's Sugar Camp mine. The lease agreement is accounted for as a direct financing lease. Total projected remaining payments under the lease at December 31, 2015 were $81.2 million with unearned income of $35.4 million, and the net amount receivable was $45.9 million, of which $2.0 million is included in Accounts receivable—affiliates while the remaining is included in Long-term contracts receivable—affiliate on the accompanying Consolidated Balance Sheets.
The Partnership holds a contractual overriding royalty interest from a subsidiary of Foresight Energy that provides for payments based upon production from specific tons at Foresight Energy's Sugar Camp operations. This overriding royalty was accounted for as a financing arrangement and is reflected as an affiliate receivable. The net amount receivable under the agreement as of December 31, 2015 was $4.9 million, of which $1.5 million is included in Accounts receivable—affiliates while the remaining is included in Long-term contracts receivable—affiliate.
So the total amounts to be received from the Sugar Camp sale/leasebacks is $ 86 million, including the expected future profit of $ 35 million. I said $ 100 million, which isn’t far off the total disclosed amount; that is the amount disclosed by FELP. But I was wrong in that the GAAP carrying value is only $ 51 million. So that is the GAAP exposure is $ 51 MM, while the economic exposure is $ 86 million.
The issue with the equipment sale/leaseback ($ 81 million gross, $ 46 million on the balance sheet) is that if FELP goes bankrupt, NRP will get back used equipment, which in today’s market is basically worthless. The coal reserve sale/leaseback, OTOH, would result in NRP getting back title to the reserves, which would be needed by any future operator.