MichaelSchmichael

19 'Bathwater Babies' for This Week

Further to my comment above, FGP announced today that it would issue 4.5 million new common units to raise cash ostensibly to pay down debt. At best, this means a ~7% decrease in the dividend via dilution. But I am betting that it is further evidence of a company in a death spiral. To me it seems pretty clear from this latest news that the company is having a difficult time rolling over its debt on favorable terms and is looking to tap the equity markets while pricing is still somewhat favorable. It also seems pretty clear from this that the company is heading down the path of either more debt, more dilution or a dividend cut.

19 'Bathwater Babies' for This Week

I disagree re Farrell Gas (FGP). The company is highly leveraged, with a simple interest coverage ratio of .39 ($9M in operating income and $17M in interest expense), quick ratio of .38 and debt to capital ratio of 101%. In fairness, these figures can be misleading -- but even when you add back in depreciation of $21M, the company still is not generating sufficient cash to cover both interest payments ($17M) and dividends ($32M). The company's dividend doesn't look sustainable -- it appears to have been relying on debt to fund the dividend in recent quarters. I also don't like the heavy reliance on receivable financing via securitizations, which likely is very expensive right now and could spell trouble when customers stop paying their bills. My bet is on a dividend cut within 2 quarters, which is why I am short FGP.