Seeking Alpha

Small Fry

 
View as an RSS Feed
View Small Fry's Comments BY TICKER:
Latest  |  Highest rated
  • Fed's Williams: June a good time for "lift-off" [View news story]
    Kocherlakota is the only Fed who understands the economy is not about to lift-off. As soon as rates rise, any interest rate sensitive industry will plummet, resulting in job losses that will just require the Fed to lower rates again. Interest is one of the biggest expense items for businesses in real estate and energy. If you increase their cost of doing business, they'll have to lay off people.
    Dec 20, 2014. 12:01 PM | Likes Like |Link to Comment
  • Why A Dividend Cut Should Not Scare Linn Energy Shareholders [View article]
    Surprised the common isn't doing better in after hours but this news is really a reason to buy the discounted bonds. Linn doesn't have a liquidity problem now. End of story.
    Dec 16, 2014. 12:43 AM | 1 Like Like |Link to Comment
  • Why A Dividend Cut Should Not Scare Linn Energy Shareholders [View article]
    Look at it this way -- while the Berry assets are now worth 40% less than what they paid for it, what they used to pay for the Berry assets (LNCO stock) is now worth 70% less!
    Dec 16, 2014. 12:38 AM | 3 Likes Like |Link to Comment
  • The Dry Bulk Industry: Q3 2014 Comparison Of Revenue And Income [View article]
    Looks like the dividends from NM's preferred stock should be very safe based on these numbers (even after accounting for the errors noted in the comments).
    Dec 15, 2014. 02:22 PM | Likes Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    I see what you're saying about raising cash (or paying down the revolver which is equivalent) to retain flexibility, but the time to raise cash is not when "blood is running in the streets". That's pretty much the definition of panicking. That said, if energy prices remain depressed for 3-4 years then it wouldn't be panicking, it would be prudent. I just don't see how that's possible, though, short of a demand shock like a global recession. The oversupply issue (which is a very small percentage of total supply) will correct through decreased capex.
    Dec 12, 2014. 10:10 AM | Likes Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    So, Matt, I'm interpreting your statement to mean that your recommendation that Linn should cut the distro to pay down the revolver has little to do with the recent drop in energy prices and mainly to do with the fact that their coverage ratio is around 1.0. Basically, any MLP with coverage around 1.0 will need to eventually reduce their distro so they will have the cash flow necessary to pay down the revolver which gives them the capacity to pay off debt when it comes due. It would be "pay the piper" time in any scenario in which coverage is hovering around 0.95-1.0.

    All, I'm saying is that they don't need to pay down debt early as a reaction to volatility in energy prices or their stock price. That would be a panicky move meant to stave off a liquidity crisis caused by a worst case scenario of depressed energy prices for more than two years. Given the self-correcting nature of markets, I don't see that worse case scenario playing. My analysis indicates that prices shouldn't be depressed longer than they are hedged unless there is a demand shock like a global recession. I'm guessing Linn thinks likewise because otherwise it would be awfully coincidental that their hedging goes out exactly as long as I think energy prices could remain depressed.
    Dec 12, 2014. 09:52 AM | 2 Likes Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    If they actually spend money on growth capex, then won't production and revenues be higher than what the author modeled above? His model assumes zero growth in production.

    One would assume they would only spend $800M on growth capex if it would produce more than $800M in additional DCF.
    Dec 11, 2014. 11:06 PM | Likes Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    I agree they've had problems with maintenance capex not being sufficient to fully stem production decline. However, now that they've transitioned to lower decline assets, shouldn't that problem largely be mitigated?
    Dec 11, 2014. 10:58 PM | Likes Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    AW,

    I'm not seeing the rationale for paying down a credit line which represents Line's cheapest source of financing. Even if it would make it easier to rollover debt due 2019 (or pay it off using the credit line at that time), why do they need to pay down the credit line now?

    The whole point of Line's hedges is buy themselves time during short term volatility so they don't need to make panicky moves. Oil prices have been down all of two months. Way too early to panic and reverse course when there's plenty of evidence that oil prices will be higher in two years when hedges start expiring and Line needs to start thinking about rolling over debt.

    If Line feels they absolutely must reduce debt now to stave off a liquidity in 2019, then the savvy move would be to buy their long term debt on the open market at less than 80 cents to the dollar. That would yield them 12% on their investment. Buying down their credit line is a terrible investment that would yield them much much less.
    Dec 11, 2014. 09:06 PM | 1 Like Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    I just don't see how its a good use of shareholder money to buy debt for $100 that's trading at a price of $80. I'm assuming you're saying they should call their debt at par as opposed to buying it on the open market for the prevailing discounted price, correct?

    Or even if you're not talking about calling notes and instead paying down a revolver or bank loan that doesn't trade on the market, they would still be overpaying for their debt. Whatever loans the bank holds should be marked down if they marked them to true value but Linn would be buying the debt at essentially par (although I realize par value doesn't actually exist for something like a revolver).
    Dec 11, 2014. 03:02 PM | Likes Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    You're correct 90% rule -- I was mixing up MLPs and REITs.

    Their existing debt is attractively priced vs. what rate they would have to pay today. That's the entire reason they can't just roll over their debt today at the same rate they're currently paying. They should avoid rolling over debt to higher rates as long as feasible.

    Seems like they could wait a couple years to start rolling over the debt that's due in 2019-2021. By that point, they could have sold some assets to pay down debt.

    But, really, the biggest factor is a rebound in oil prices. The theory behind Linn's ability to sustain their dividend rests on the idea that there is not sufficient oil that's economic below $75/bbl to meet demand and in the long run of a year or two, supply will adjust. We've already heard of $billions of capex that's been cancelled that will start to impact supply as early as the second half of 2015.

    More that $150B of oil projects cut for 2015:
    http://cnb.cx/1Dib6Xi

    And, that article is outdated as it assumes $82.50 oil in 2015. At $70/bbl, capex plans are cut by $250B. That's got to significantly impact supply 12-24 months out.

    The point of the hedges isn't to sustain DCF indefinitely. It's to sustain them long enough for the supply/demand imbalance to correct.
    Dec 11, 2014. 02:52 PM | 1 Like Like |Link to Comment
  • Linn Energy - Strong Cash Flow For Years [View article]
    Why would they want to refinance attractively priced debt with debt that will cost them more? Why would their banks (or anyone) want them to do that? The whole point of obtaining long term financing is that you don't have to worry about it in the event of short-term volatility.

    As for their distributions, they have no choice but to payout at least 90% of their DCF. It's a requirement for them to maintain their tax status.
    Dec 11, 2014. 12:14 PM | 10 Likes Like |Link to Comment
  • Here Is Why I Reluctantly Added To My Investment In Linn Energy [View article]
    Line also sold a crap load of LNCO to Berry at $105 oil. Works both ways when you acquire using shares. I'm sure Berry shareholders, who are now down 50% on the shares they received in LNCO for their company aren't terribly pleased with the sale of the company.
    Dec 10, 2014. 11:00 PM | 9 Likes Like |Link to Comment
  • Linn Energy: An Explanation Of The Effect Of Recent Transactions And Preliminary 2015 Guidance [View article]
    Thanks for your work, Thomas.

    However, if your best estimate is DCF of $2.90+ and not $1.38 then I kindly request that you submit an edit to your article showing $2.90+. Or at a minimum, add a note at the top of the article asking readers to refer to your 10/10 12:37AM comment for your revised best estimate showing greater than 1.0 coverage. It's a pretty huge swing for your best guess to go from a substantial dividend *cut* to a possible dividend *increase*.
    Dec 10, 2014. 01:33 PM | Likes Like |Link to Comment
  • Linn Energy: An Explanation Of The Effect Of Recent Transactions And Preliminary 2015 Guidance [View article]
    I don't think DD&A gets subtracted from distributable cash since it's not a cash expense.
    Dec 10, 2014. 11:48 AM | 1 Like Like |Link to Comment
COMMENTS STATS
279 Comments
488 Likes