Is anyone familiar with BBEP?

[Rabbitisrich]

Their stock price cratered today after they cancelled their dividend to comply with covenants. Their dividend will not resume until they reduce their outstanding debt to below 90% of capacity, which could take a while as the lenders may reduce capacity by just enough every quarter.

 

The price drop may have more to do with the fact that partners must continue to pay taxes on the expected dividends, regardless of cash distribution, than with the actual business. I would love to purchase a company that drops on technical factors.

 

Any thoughts on this company?

[Myth465]

I sold LINE and EVEP to buy BBEP which looked smart until last Friday.

 

Now sitting on an unrealized loss of 10% vs, a gain of 40%. I am holding and may add to LINE or EVEP if they go lower. The stock is an even better buy based on intrinsic value but, the thesis of 30% in dividends each year on 15 - 20 years of assets has changed. They will likely not pay a dividend for 2-3 quarters. Or could pay a small dividend after 1-2 quarters and slowly bring it up.

 

My guess is it will be at least 10 - 15% but not the 30% expected. The stock will come out better when the next upturn hits though due to much lower debt levels if divs are skipped for a while.

 

I am holding and may add in the $4 range.

[JAllen]

Yes, the company is still generating the same amount of cash  with their substantial hedge book but now the cash will be diverted to paying down some of that debt instead of out to the shareholders.  It's still the same earnings power of course.  I have no idea when they will again pay a dividend but I still own most of my position. 

 

The stock cap/cash flow multiple is very small still!

[Rabbitisrich]

I decided to avoid this company almost after reading one 8-K. Their corporate governance is miserable--the audit committee is the same as the compensation committee and is paid by the GPs, and the board of directors is tiered--and the compensation structure is ridiculous. Do the senior executives really need a short-term incentive plan on top of their base salaries and long-term incentive plans?

 

I also don't like that the company announces about $12M in SGA reduction, of which $10M is an accounting move from SGA to operating expenses. That accomplishment will benefit their short-term incentive plans. They are also in the process of selling 2011-2012 hedges to pay down debt. That is not necessarily a bad move, but in the context of their compensation policy, I can't trust that management has a rational basis for this and future actions.

 

I'm probably wrong on this one, and I hope that you two do well on your investment, but all of my investment errors have come from chasing high cash flow yields into the arms of untrustworthy or poorly run management.

[Rabbitisrich]

Does the shelf registration of June 10 make anyone nervous? Management is strongly incentivised to short-term results, so an equity offering at this ridiculous price may happen.

 

I love the hedges, but management seems to possess the same moral fiber as the MBIA team. Any contrary opinions?

[Myth465]

I sold out a while back and want to buy back in. Hopefully Klarman wont allow the dilution but, all of the MLPs and shipping stocks seem to want to buy high and sell low. Interesting.

[ragnarisapirate]

A few points:

 

1) as has been said, it seems like the company will be making it to 90% of it's debt covenant in 1-2 quarters (based on last Q's numbers; which had pretty bad oil prices)

 

2) this would be a great stock to have in a Roth IRA since you get around paying taxes on the earnings of it, no?

 

3) because of the taxes that will have to be paid on earnings (which you won't directly see for a bit), won't that provide for a good jump in the price (since it will provide more incentive to buy), once the debt covenants are covered?

 

[Guest Bronco]

I don't understand the shelf registration.  The company must be under a certain level of debt in order to pay a dividend - so it seems like they were doing the right thing and paying down debt. 

 

With the shelf registration, I am assuming they will issue a form of equity, pay down debt, and therefore re-institute a dividend. 

 

I am never a fan of raising capital to pay a dividend.  It makes no sense, and I don't think it works.  But we will see - to my knowledge they haven't issued any securities as of now (late June 09). 

[T-bone1]

 

2) this would be a great stock to have in a Roth IRA since you get around paying taxes on the earnings of it, no?

 

 

My understanding is that owning an MLP (or publicly traded partnership as the industry calls itself) can open you up to filing a tax return for unrelated business income in an IRA or other tax-exempt account.

 

I believe you can have up to $1,000 in income of this type per year (which counts for BBEP regardless of whether or not they pay the dividend), but after that you probably have to pay. Filing a tax return for your IRA probably isn't much fun so I wouldn't suggest exceeding this limit.

 

If anyone knows better than me please chime in. Thanks.