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Douglas E. Johnston  

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  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    @darbyred - the discussion is about the senior notes they refinanced...the ones (500mn face) that had a high 9% coupon that was refinanced....not the credit agreement
    Sep 4, 2014. 08:48 PM | Likes Like |Link to Comment
  • The Value Of Cliffs Natural Resources Is All In The P/B Ratio [View article]
    credit line has a debt-to-cap limit (+others) so its in there...it is why CLF says they are working with bankers on the actual buybacks...not sure about the unsecured bonds though...at the moment they trade "ok" 5-7% depending on maturity - i don't see how they make an asset sale without a write down and covenant hit...
    Sep 4, 2014. 01:35 PM | 1 Like Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    i concur although i think issuing shares (a secondary not an ATM) might be preferred to div cut. While the latter is not a strategy when DCF is slated to remain uncovered (think EROC), i think if u believe in the 2016 EBITDA story, then issuing 10-12mn shares would alleviate leverage concerns...they are just living too close to the edge at the moment. My guess is their strategy is to not issue equity until EBITDA and share price picks up but that means this is a very risky play if something doesn't work out over the next year or so. Cutting the dist is probably more the case when u don't expect coverage for the medium term.
    Sep 4, 2014. 01:28 PM | Likes Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    @glen - a fair and balanced comment...one thing I do not like is the ATM program - I never know when they are going to issue. With DCF coverage low, effectively investors need to reinvest back into shares and wait till 2016 as u state. I'd like to buy when they are selling. So I would much prefer they come out and issue say 5mn shares. Granted s.p. might get hurt say 5% but I think it would gain some investor confidence regarding their leverage metrics....
    Sep 4, 2014. 09:41 AM | 1 Like Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    No they are now paying a lower interest rate so - yes they paid a premium in today's dollars (nearly $100mn when u include all fees etc.) but they will save on interest payments going forward. Not a great deal from CLMT's perspective by any stretch but I guess they valued the two year extension.
    Sep 4, 2014. 09:23 AM | Likes Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    Yes. Including all fees and whatnot would imply they actually paid up to extend but maybe that's expected with the extension.
    Sep 4, 2014. 08:59 AM | Likes Like |Link to Comment
  • The Value Of Cliffs Natural Resources Is All In The P/B Ratio [View article]
    Has CLF changed the carrying value of their assets in recent years? It looks like the have PP&E pretty much at the same level as at the end of 2012 when IO was well above $100. Seems like a 25% cut in that carrying value is not unlikely. This would reduce BV/share down to about $20. Then if you need to sell in today's pricing environment, who knows what you'd get.

    As for buybacks, I really don't see how CLF (or Casablanca) can pull that one off given their writedowns and reduced ebitda, that will occur with a sale, and their debt covenants.
    Sep 4, 2014. 08:53 AM | 1 Like Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    Welcome to SA - i see this is your first comment. Your first statement is incorrect. You should note that the debt they refinanced was trading above par. Here is from their 10Q:

    "On March 31, 2014, the Company redeemed approximately $326.0 million and $174.0 million in aggregate principal amount outstanding of the remaining 2019 issued in April 2011 and 2019 Notes issued in September 2011, respectively, with the net proceeds from the issuance of the 2021 Notes at a redemption price of $570.9 million."

    This implies a redemption price of 114.18 for the refinanced debt. If you include all fees etc (a total $89.6mn loss recorded), then the redemption price is higher. Simply using the 114.18 results in a yield to maturity of about 6.4%. They issued the new 2021 bonds at 6.5% (ignoring an extra 16mn in OI discounts). So, they simply made an upfront payment in order to reduce future interest payments. There was no "400 basis points" of savings. I am sure the banks understood that.

    So your first statement is incorrect.
    Sep 4, 2014. 08:43 AM | 1 Like Like |Link to Comment
  • WSJ: Cliffs Natural Resources hires adviser to sell certain assets [View news story]
    problem is at current IO price, their ebitda run rate is like $450mn/annum. Given 3bn in net debt, that's 6.7 times leverage. If they sell say Asia mine, then ebitda drops to ~300, which means they'd have to fetch $1bn for the sale just to keep leverage flat. Now who is going to pay $1bn for a 6-year expected life mine generating $200mn/annum? No one. And even if u did, it leaves no $$$s for buybacks...I just don't see how they get out of this quagmire with IO sub $90

    And then there is coal...

    they need to restructure the balance sheet - cut div and issue equity now
    Sep 3, 2014. 05:31 PM | Likes Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    last qtr's sales were up 7% sequentially and 6% YOY so I'm not sure i see the impact of the refinery downturns - they inventory up for these don't they? Turn around cost was up to 19.2 vs 3 for Q1 (way low) but the average turnaround was $17/q in 2013. Even with zero turn around cost, DCF would have been zero (vs sub-zero)....it really was the spread and i don't see massive improvements there (diesel up/ gas down), WCS is down to -15
    Sep 3, 2014. 12:40 PM | 2 Likes Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    yeah - i'm not saying issuing shares to make dist payments is a brilliant strategy but neither is letting your leverage get to six. It boils down to 1) Do you believe them on Montana and 2) Will nothing "bad" happen between then and now.....doug
    Sep 3, 2014. 12:28 PM | 1 Like Like |Link to Comment
  • Distribution Reduction In The Cards For Calumet Specialty Products? [View article]
    Hi Tim - You are correct, distribution coverage is poor here. I calculate it will be .5 for all of 2014 and leverage (net debt/ebitda) at about 5-6 depending on how much equity they issue - note they have an ATM already in place although, as of 6/30, they had not issued any. Their covenants have been modified greatly reducing concerns there. Of course, that does not mean the high leverage should not concern investors. They are making a highly levered bet on their Montana refinery (along with crack spreads) being finished on time and producing the expected $140mn in EBITDA in 2016. Even so, I think they will (or should) issue an additional 12mn shares if they are going to maintain distribution. I am wary of this MLP because I think it is not fair to keep paying large IDR payments when coverage is low, their risky balance sheet, and that their is an ATM for secondary offerings.
    Sep 3, 2014. 11:01 AM | 3 Likes Like |Link to Comment
  • How Much Is Cliffs Natural Resources Worth? A Business Owner's Perspective [View article]
    Hi Siming - i will have to read your comments in more detail when time permits but I just wanted to suggest a book you might enjoy. "Investment Science" by David Luenberger. I found it very useful. Have a great weekend and welcome to the SA community (its an interesting crowd!)....gl

    doug
    Aug 30, 2014. 09:50 AM | 1 Like Like |Link to Comment
  • How Much Is Cliffs Natural Resources Worth? A Business Owner's Perspective [View article]
    I am not sure using the historical ratio of net profit/gross profit over the last 3 years is a good guide to long-term performance but be that as it may...

    as for assuming the growth rate in gross margin equates to the appropriate discount rate makes me extremely uneasy. First, the discount rate in the denominator is a "business" (or equity) discount factor which typically is the rate of growth + a risk premium. It is the demanded ROA by the business owner in your context. Also, it is unclear why the assumption that the growth in iron ore prices will exceed the growth rate in mining costs leading to every expanding gross margins. As an analogy, what answer would you get in a DDM model where the growth rate of dividends is assumed = to the required equity return?

    For ex, lets just say USIO mines 25mT per annum at your $20 GM and use the 40% which would be $200mn in net profit/annum (this implies an IO price well above current forecasts for the next few years). And if u say the required ROE is 10% over the growth rate in profit, we'd be talking a $2bn valuation. Clearly, we can produce pretty much any valuation we want by simply playing with the assumptions. And this does not include the needed capex to actually begin mining.

    Even with proved reserves there are necessary capital expenditures needed to actually get them out of the ground. As for the 50% on probable, I do not know industry standard for the assumption on conversion to proven.

    While i think your analysis represents a good first step, I do not think there is sufficient information to suggest that CLF is a buy
    Aug 29, 2014. 04:52 PM | 1 Like Like |Link to Comment
  • How Much Is Cliffs Natural Resources Worth? A Business Owner's Perspective [View article]
    wait

    Are you taking the probability weighted reserves of 588.7 and then multplying by a $20/ton gross margin assumption? and then taking at 60% haircut to get a value of $4.7bn for USIO?

    Don't you think that net profit margin is related to the price of IO?

    Where is your discount factor to convert reserves to present value?

    What are your capex assumptions (e.g., to convert prob to proven?)?
    Aug 29, 2014. 02:50 PM | 2 Likes Like |Link to Comment
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