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Strategies & Market Trends : Value Investing
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E_K_S
To: E_K_S who wrote (52376)9/13/2013 11:40:31 PM
From: Spekulatius1 Recommendation  Read Replies (2) of 78763
 
Re NS/NSH - for me, a distribution cut almost appears certain. They state that they have to go through the budgeting process before formally making a decision of course but I just don't see the numbers adding up.

They mention cost cutting but SG&A is ~100M$ a year and if they cut 20%, that would be 20M$, which is only about 25c per NS unit. This is not enough to close the funding gap. They discussed in length that they are severely capital constraint, to the point that they may reject projects with 20% EBITDA yield.

They don't feel like they can issue equity at current prices and that only deepen the hole in terms of distribution coverage. Raising more debt most likely would lead to a credit downgrade. They plan ~380M$ in Capex next year. Something has to give and the biggest lever that management controls is the amount of distribution. Not only will they have to cover the distribution from DCF, they probably have to retain some cash flow to get a littld buffer.

I did know that they supplied credit support to thr now deconsolidated asphalt JV but I did not know that it could be up to 400M$. That could mean further downside, if this JV defaults on their oligations.

I see further downside. Maybe management can get a hattrick done and do a really good deal or sell some assets for major $, but I wouldn't bet on it, based in their track record so far.They are skating on thin ice and they know it!
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