Wednesday, November 30, 2016

How Secure is Ferrellgas Partners'18-Percent Yield?

One might infer that the market has already discounted Ferrellgas Partners (FGP-$5.55) reported $628.8 million asset write-down of its disastrous 2015 acquisition of Bridger Logistics (a provider of integrated crude oil midstream services), given the 70% slide in the propane provider's share price. Ergo, income seeking investors might be tempted to buy some shares yielding a juicy 18% (assuming – as suggested by management – that the annual distribution after a rate reduction from $2.05 will be approximately $1.00 per common unit). 

FGP has been successful in modifying its loan-covenant leverage ratio from 5.50x to 5.95x through December 2017. Predicted cash flow shortfalls, however, suggests that the company will likely need to reduce expenses and debt in coming quarters. Going forward, management believes that the amendments to its secured credit facility, when taken together with other debt reduction initiatives and securitization of accounts receivable, will be sufficient to meet required capital expenditure, working capital and letter of credit requirements. 

Buried in FGP’s regulatory filings, however, is the following red flag to unit-holders: “Our secured credit facility, publicly-held debt and accounts receivable securitization facility contain several financial tests and covenants (such as the leverage ratio and a fixed-charge ratio of less than 1.75x) restricting our ability to pay distributions.” 

Under existing covenants, FGP is limited in future borrowings to just $8.1 million Given a net debt ($2.16 billion) to adjusted EBITDA ratio of 6.1x and anemic propane sales, FGP could find it more difficult to satisfy its debt service obligations – which means that even that targeted $1.00 distribution could be illusory. In other words, “Buyer Beware!” 

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy. 

Wednesday, November 09, 2016

Viper Energy Shows How Not to Win Over New Shareholders

It's prudent that prospective shareholders invest time in due diligence before taking the plunge and purchasing shares or units in any company. This investor had [past tense] a possible interest in becoming a stakeholder in Viper Energy Partners (VNOM). I had one question to ask of management about something I came across in my research: Oh, just a "little" issue regarding the current status of a "Continued Listing Standard" notice the company received back in July. 

 My letter to CEO Travis D Stice: "You folks obviously aren't interested in attracting new shareholders. Not only does no one return my call or email [re: NASDAQ "Continued Listing Standard Notice"] - but when I call the home office I'm shuttled off to a 10+ minute waiting hold time - like I'm some little kid in grade school getting a timeout - and then hung up on!!!!" 

Sirs, Forget about it! This is one snake I'm gonna' let slither by me in the grass.

Thursday, May 26, 2016

Sell-Side Analysts Avoid the Tough Call on Oasis Petroleum - So What?

Looking for a job that can pay upwards of $400,000 a year – irrespective of proficiency? Consider a career as a Wall Street stock analyst. 

On May 9, uBS analyst William Janela maintained his “Hold” rating on E&P Houston-based Oasis Petroleum (OAS) and set a price target of $9. The company’s shares closed at $9.46 on May 10. 

Cantor Fitzgerald analyst Brad Carpenter reiterated a “Hold” rating on Oasis on May 19 and set a price target of $9. The company’s shares closed that day at $9.46. 

One of the worst kept secrets on Wall Street is that a “Hold” rating issued by research analysts is synonymous with a “Sell” rating. How come the analysts do not just tell investment banking clients to sell – and lock in profits? 
  • Some firms link compensation and bonuses— indirectly — to the number of investment banking deals the analyst helps to land. 
  • The issuance of unfavorable reports could alienate senior management and shutter future access. 
Setting a target price close to – or less than – the current price is a riskless way to earn your way to that six-figure salary. Where do I sign up?

Monday, February 29, 2016

Management of Enable Midstream Puts Lipstick On a Pig

Rod Sailor, chief executive officer of Enable Misdtream Partners, LP (ENBL - $5.52) reminded analysts on the recent 4Q:15 earnings call that the owner/ operator of natural gas and crude oil infrastructure assets retains an "investment grade rating." 

Yes, the limited partnership has an attractive footprint in four of the most prominent natural gas and crude oil producing basins in the country, including the SCOOP and STACK plays in Oklahoma.

Yes, though S&P recently revised its outlook to negative - citing an opinion that "continued hydrocarbon pricing pressure could further erode Enable's cash flow gross margins and gathering volumes" - even the reduced BBB- rating is still "investment grade." 

That said, if it were really true that the company stands on a solid financial foundation, why did it swap $363 million in notes coming due in 2017 (bearing an average-weighted fixed costs of about 2.2%) for $363 million of Fixed-to-Floating Perpetual Preferred Units ($25 face value) yielding 10.0% -- otherwise known as JUNK YIELD? 

Under the debt-to EBITDA (leverage) covenant, a ratio higher than 5.0 would be a violation and restrict access to further debt borrowings. Enable's media and investor relations contact, Kevin White, confirmed that the swap from debt to equity would proactively help the company stay within its debt limit. Unfortuately, given the current lending environment, this balance sheet maneuver does increase cash outflows by some $27 million (due to dividend payments on the new preferred units).

The current payout yield of 23% on the limited partnership shares suggests the smart money on Wall Street thinks the $1.27/share distribution is unsustainable.

Given that key customers - such as Chesapeake Energy (CHK) - are looking to lower expenses, it's likely that gas gathering fees will be renegotiated. Should natural gas prices remain near or at multi-year lows, Enable will be struggling in coming quarters to maintain a distribution coverage ration of 1.0 times.  

Though Enable Midstream does remain one of the more "healthier" midstream master limited partnerships, it is far from investment grade beef: the redress of debt to equity is nothing more than lipstick on a pig.

Editor David J Phillips holds a financial interest in the stock mentioned in this article. The 10Q Detective has a Full Disclosure Policy. 

Wednesday, January 20, 2016

Stop the Presses! Benzinga's Got a Hot Story About WPX Energy

An example of the Fourth Estate’s trending indolence is found in a recent Benzinga business story.

Shares of WPX Energy Inc (NYSE: WPX), a natural gas and oil exploration and production company, hit a new 52-week low of $2.53 after the company disclosed it has added more hedges to protect its cash flows.  

Shares of WPX Energy were halted for trading three times and were trading lower by more than 25 percent by late Wednesday morning. 

WPX Energy said that approximately 75 percent of its anticipated oil volumes for 2016 are hedged "well above" the current market price. 

The company expanded that it now has 29,380 barrels of oil per day hedged at $60.85 per barrel. WPX Energy also noted that throughout the past two months, it has been active in reducing its long-term debt by repurchasing approximately $68 million in notes of a $400 million maturity due in early 2017 at a discount to par. 

Finally, WPX Energy stated that it has been increasing its liquidity through asset sales and remains engaged in discussions with third parties in regards to its assets in the Piceance Basin. "We continue to proactively manage our finances," stated Rick Muncrief, WPX president and chief executive officer. "This positions us to grow our portfolio when commodity prices rebound, especially our world-class Permian Delaware asset. The results of our early work in the basin are exceeding our expectations. 

"Despite the lede, not once in the article did the columnist, Jayson Derrick, mention (or even speculate) WHY the share price sank 25% in value.

If copying a business wire press release passes as business journalism in the new millennium, where do I sign-up  (to make some easy cash)?

Thursday, January 14, 2016

The progress U.S. leadership has made in the world

“The world will look to us to help solve these problems, and our answer needs to be more than tough talk or calls to carpet bomb civilians. That may work as a TV sound bite, but it doesn’t pass muster on the world stage.” President Barack Obama - 2016 State of the Union Address

How do images of U.S. Navy on their knees before their Iranian captors “work as a TV sound bite” to the world, Mr. President? But then you have that “historic global climate agreement” as your foreign policy legacy, Mr. President – now don’t you?

Tuesday, December 08, 2015

Wall Street Traders Doubt Legacy Reserves' Survival

The markets continue to signal that energy MLP Legacy Reserves (LGCY - $1.76) is on the brink – of a potential bankruptcy filing: the price of common units have fallen more than 57% since 3Q earnings release on November 5.  

Chief executive Paul Home – at least in public – continues to assuage analysts and investors alike, emphasizing management’s combined experience in working through prior cycle lows.

Granted, LGCY does have good geographic diversification, with operations in the Permian basin, Rocky Mountain, and Mid-Continent regions. Nonetheless, Wall Street is signaling that the MLP’s significant leverage is unsustainable – total debt of $1.46 billion swamps equity (after the latest round of asset write-downs) more than 8 times: the 8.0% preferred stock has lost almost 40% in value – current yield is 29%; the 6.625% bond maturing December 01, 2021 has plunged more than 70% in the last sixty days and currently trades for twenty cents on the dollar!

CFO Dan Wescott insists, however, that going forward the MLP will continue generating free cash flow. True, adjusted EBITDA in the latest quarter easily covered bond interest and preferred dividend payments more than 2:1 times.

As indicated, current trading suggests Wall Street isn’t buying management’s optimism. Additionally, as hedges roll off (natural gas hedges cover only 45% of current production for 2016), distribution coverage of even bond payments is suspect.

Going forward unless the MLP monetizes some of its untapped acreage positions – or seeks out a buyer for its lucrative midstream assets (567 miles of high-pressure pipeline & low-pressure gathering systems) – to cure debt-related obligations, there will be no “legacy” for investors to inherit.

Editor David J Phillips holds a financial interest in the stock mentioned in this article. The 10Q Detective has a Full Disclosure Policy.