That said, it's nice to see they are buying back shares. At a 30% discount to NAV, probably a better investment than they can make. Ironic isn't it? Maybe there is a new strategy here. Just be a lousy investment manager so that your shares constantly trade at a large discount to NAV and then get rewarded by buying back your stock at the discount.
Because they never had the $200m to pay the dividend in the first place. If they had the cash flow they could have simply cut the dividend, but in addition they had to borrow more money at an outrageous interest rate to maintain liquidity. If oil price dynamics do not eventually improve they are going to have to sell assets to survive. They alluded to this in their recent SEC filing. They simply have too much debt and they just acquired more. Not good.
Those bonds are trading around 70 according to a recent etrade bond quote. Last trade 70.5. On Friday they traded at 73. Not too bad of a hit.
And he gets paid $1.69 million to make a difficult decision? Right. You keep telling yourself that. How much did you get paid for that decision? I don't think you get it. If the bonds are in distress and trading at under 10 cents on the dollar, what do you think the units are worth? Hint. Nothing.
The real issue here is they have a lot of debt. And a lot of this debt is tied to the banks who periodically redetermine the borrowing base. If their revenues fall enough, the borrowing base could be reduced and put them into financial distress. It's happening to a lot of these MLP's. It's something to watch for with this one too, even though they are midstream. Witness SXE.
I agree. It is unlikely the units will have value longer term. Renegotiating debt usually results in the debt holders becoming the new equity holders (or in this case unit holders) and the existing unit holders being wiped out. I suppose there is always a probability that the existing unit holders will receive some benefit depending on exogenous events (such as the oil price recovering), however unlikely, which is perhaps represented in the current value of LINE/LNCO units. A better idea may be to sell the units and use the proceeds to buy the bonds which are trading around 10c on the dollar. I think that raises your probability of achieving some type of return.
Thank you. This is what I have been thinking all along. I guess it's nice when markets become irrational. It gives us a chance to make money. I still can't believe the price got this low. Even $3 is crazy low for a company with such a balance sheet.
Haha. Good analysis. Once the stock goes up and you make a lot of $$, I surmise you will have a lot of girl friends. ;)
Are you for real? How do you derive that payout? Total cash flow from ops in 2015 was $134M, if you take out all the HMM charters and assume 0, you get 52/134 or about 38% of cash flow. So in the worst case 38% of the dividend is .36 or the new dividend would be .59 which is ridiculous in itself since we know they would be able to recharter. But even if they didn't it would still be 23% distribution yield. Please support your .15 - .30 annualized suspicion.
I know, the market hates me too, but in this case I think they have it wrong. Maybe we will even close up on the day ? Maybe.
I know, that's why I'm scratching my head on why this stock is down so much. There seems to be plenty of cushion. Hopefully there is nothing else we are missing.
Furthermore, it looks like HMM represents about one quarter of their revenue. Not that they would lose it all in a bankruptcy, but some portion of that would likely be in jeopardy.
It's going down because one of it's large customers HMM is on the verge of bankruptcy. From the last presentation it looks like they have 5 ships chartered at gross rates of 29,350. That could be a big chunk of their earnings if HMM goes down.
This is the problem since a lot of shipping companies are up big in the market today. FRO is up 11%, for example.
I'm right with you on this. I keep scratching my head on why the unit price is so low. When I look over their recent earning's report, if anything their day rates are increasing which should lead to additional cash flow. The only thing that makes sense is that the market thinks that there will be a default my HMM which will lead to an earnings hit. The risk of CPLP is that they have relatively few customers, not necessarily for a shipping company, but for a company in general, and so a hit by only a few customers can have a larger impact on earnings. The other thing is that it is in the MLP space and is a Greek company both of which have some headwinds given the relative factors of the two. Nevertheless, I think this is a very reasonable risk/reward trade off. It's in an out of favor space with good fundamentals and a very large distribution yield which provides plenty of cushion in my opinion.