Is NGL Energy (NGL) a Smart Long-Term Buy?
CrossingBridge Advisors, an investment management firm, released its third quarter 2023 investor letter, a copy of which can be downloaded here. In the past 12 months, the CrossingBridge CBRDX delivered a 7.45% return, surpassing the performances of the Short-Term Treasury Securities which returned 3.07%, 3.46%, and 4.30% during the same period. Take a moment to review the fund's top 5 holdings to gain insights into their primary investment choices for 2023.
In its Q3 2023 investor letter, Crossing Bridge Advisors mentioned NGL Energy Partners LP (NYSE:NGL) and explained its insights for the company. NGL Energy Partners LP (NYSE:NGL) is a Tulsa, Oklahoma-based midstream energy and infrastructure company with a $573.8 million market capitalization. NGL Energy Partners LP (NYSE:NGL) delivered a 259.50% return since the beginning of the year, while its 12-month returns are up by 271.79%. The stock closed at $4.35 per share on December 08, 2023.
Here is what Crossing Bridge Advisors has to say about NGL Energy Partners LP (NYSE:NGL) in its Q3 2023 investor letter:
"NGL Energy is a diversified midstream master limited partnership (MLP) that provides transportation, storage, marketing and other logistics services for crude oil, liquid hydrocarbons, and water generated as part of energy production. Experiencing a sharp decline in EBITDA during 2020, NGL repaid its asset-backed loan facility and bridge loan in January 2021 by issuing a 7.50% senior secured note due 2/1/26. Given elevated pro forma net leverage, bond purchasers required a covenant preventing the company from paying dividends until total leverage was reduced below 4.75x EBITDA. Thus, since that bond was issued in January 2021, the company has keenly focused on de-leveraging. “Walking the talk,” the company partially repurchased its 7.50% unsecured notes, due 11/1/23, during 1Q23, ultimately calling the remaining bonds, of which we were holders, at par on 3/31/23. Concurrent with our initial purchases of the unsecured bonds in January 2023, we began to purchase the 7.50% senior secured notes due 2/1/26. With conservative secured leverage and expectations for continued de-leveraging, we were comfortable purchasing these bonds at a weighted average price of 95.8, providing a yield to maturity averaging of 9.14% and the opportunity for a higher rate of return if the company followed through on its stated intention to repay this bond before it became a current liability on 2/1/25.17 To that end, management expressed its intention to repay the 6.125% unsecured bonds, due 3/1/25, no later than the end of March 2024. Still able to purchase the bonds at a discount, we added to the position in the 6.125% bonds in late August, and, in addition, have been actively trading the NGL Series B Preferred Stock. The preferred shares have been accruing their dividend at a rate that resets each quarter, currently 12.783%, and, as of quarter-end, are trading at nearly a 20% discount to their liquidation value which continues to increase with each dividend deferral. As the company is prohibited from making distributions to MLP unit holders until it has paid the preferred dividends that are in arrears and resumed the cash dividend to the preferred shareholders, we anticipate significant catch-up payments as early as late 2024 if the company succeeds in refinancing its capital structure. NGL is a good example of a series of attractive, well-grounded investments, that “advance the runner” without “swinging for the fences.”"
A technician wearing a safety vest standing alongside a commercial-scale energy storage stack.
Our calculations show that NGL Energy Partners LP (NYSE:NGL) does not belong on our list of the 30 Most Popular Stocks Among Hedge Funds. We also mentioned NGL Energy Partners LP (NYSE:NGL) in another article. NGL Energy Partners LP (NYSE:NGL) was in 2 hedge fund portfolios at the end of the second quarter of 2023, compared to 1 fund in the previous quarter. NGL Energy Partners LP (NYSE:NGL) delivered a 13.28% return in the past 3 months. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters Q3 2023 page.
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Disclosure: None. This article is originally published at Insider Monkey.
