Both you and marklibera are very smart guys, and I agree ARP'd better tackle its debt soon. However, I don't get why you two have been so obsessed with ARP, could have instead shorted EVEP, which I mentioned multiple times in my replies.
Take a look at NGL, it made a 52 week low today for no apparent reason, surprising after it raised distribution and reaffirmed growth guidance. 15% yields, different midstream/downstream biz units, some being natural hedges to commodity prices.
I see what you are saying, it's not the 4th qtr that's the problem, dcf guidance is pretty closet to cover distribution, it's the first half esp Q2 where coverage was not even close.
If one wants a higher yield and even bigger margin of safety, one can buy 7.75% 01/15/2021 ARP senior notes with a current yield of 18.5%.
Your yearly DCF number appears way off, not sure how you got the $1.37 figure. In fact, everything is in the press release, don't even know why you need to calculate that number. For the first 9 months, total DCF is only $90,553m, the guided midpoint DCF for the year is $114m.
If you believe there will be a rather quick rebound in NG, then you buy SWN. If you believe "lower for longer" and SWN will come out of this a winner, then you go with SWNC. At the current price, SWNC will be converted to 2.17391 shares of common stock on January 15, 2018. If you compare that with SWN $13 call option price further out, SWNC is clearly a better buy
Why pay the cost for $15 calls when you can buy SWNC that will be converted to SWN below $15 at the current price and pay you (almost 10% yield) to wait for an eventual recover.
Thanks for your time and effort. One apparent issue I have is that with notes trading at 35c on the dollar, I think Linn mgmt would be able to do much better than buying back debt "at the same discount as with the most recent buybacks". Regardless, I agree with your conclusion that current Linn unit holders probably would never see another distribution. In addition, not only there is a good possibility that current Linn shareholders will get wiped out down the road, LINE unit holders also will get hit with "phantom" tax on COD income gains from debt repurchases this year and next. My opinions are
1. If one really want to hold onto Linn, swap out of LINE and into LNCO to at least avoid the tax hit.
2. Buy Linn bonds and buy puts on LINE. You get paid with a 20+% current yield in the next couple of years while waiting for oil/gas price to recover. If Linn survives, you will hit a triple. If not, there will probably be a debt to equity swap that unsecured bond holders would own the company wiping out current unit holders. Buying puts on LINE as a hedge If you are afraid things will get so bad that there will be little recovery value left for unsecured bond holder. In fact, there is such a disconnect between Linn bonds and Linn shares, I think there is a reasonable chance that buying senior notes and puts on Linn may both turn out to be profitable.
I didn't pay SA, I read it on its iPhone app, which would show pro articles at least for now. The leverage ratio is indeed low at 1.7x, but EBITDA last Q fell hard to $19.2M, assuming it remains flat by Q2 2016, then the leverage ratio would be around 3x, which would still be low, so probably can get a waiver.
It's nothing but a copy and paste job on the latest investor/lender presentations, there is no substance, debt is low, but you may want to watch where EBITDA is going, as there is a 3x covenant on Total debt / LTM EBITDA, which may be breached Q2 2016, although it probably can ask a waiver like some of its peers, e.g. EMES, have already done.
I mostly agree, but do keep in mind while the leverage ratio (total debt / LTM EBITDA) is currently at a sector low 1.7x, EBITDA last Q fell to $19.2M, assuming this remains flat til Q2 2016, then the leverage ratio would be around 3x that may breach the covenant on their revolving credit line that would restrict them from cash distribution. It may be able to get a waiver like EMES did (relaxed from 3.0 to 3.5).
FWIW, last week's Barron's has a very bullish article on propane.
Propane’s Rise Is Just Getting Started
The gas used for home heating has begun a price rise that should continue as the U.S. works off its oversupply.
Following a tough 18 months, U.S. prices appear on the verge of a sustained rebound with the arrival of a new fleet of delivery ships, easing a bottleneck that left the U.S. market flooded with supply of a gas used primarily as heating fuel. Record stockpiles...
I am new to HCLP, so I may well be wrong. I just took a look at its 10K, and notice 13,640,351 subordinated units that won't get paid unless MQD is paid to commons. On a quick calc, I doubt distribution would be cut below the MQD of 47.5c this qtr.
Yes, you are right, I am holding on it just to wait for a lateral move. Anyway, I am not buying more upstream here, midstream MLPs have come down significantly, some also carry yields above 20%+ that are far secure, a couple I like are CEQP and HCLP.
In fact, I think ARP fit your strategy pretty well. It pays the most near term. With so little room in it's borrowing base, I think there is a good chance MCEP would be forced to suspend its distribution very soon.Just look at what happened to EOX and NSLP, drastic reduction in borrowing base.
I agree ARP may have to cut, in fact it probably should cut now to buy back its bonds for 40c on the dollar; but with a 50% cut, it would still yield 20%, ARP doesn't have have to hold its distribution to be a buy.
Unless oil price recovers substantially in 2016, their analysis sounds about right. I like herold's strategy that you hold onto sth that will pay you to wait then make a lateral move when a distribution cut/suspension triggers overreaction to MCEP (borrowing base cut), or LGCY (enhance swap/3-way collar backfiring). BTW, I read about FBR upgrade news earlier this week. FWIW, they downgraded MCEP/LINE, but reiterated Outperformance on ARP/LGCY/MEM/VNR.