Citigoup is out with a pretty powerful negative call on Atlas Pipeline Holdings (NYSE:AHD) downgrading the shares to Sell from Hold while lowering tgt to $4.
Firm notes Atlas Pipeline Partners, L.P. (NYSE:APL) has debt covenants that call for maintaining a Debt/EBITDA ratio of no more than 5.25x and EBITDA/Interest coverage of no less than 2.75x. In view of continued weakness in commodity prices and current debt levels ($1.4 billion net debt), APL could potentially be in violation of its covenants as early as Q1:09. Firm is lowering their target price on APL to $9.00 from $14.50.
Impact on AHD Amplified — As with other general partners, changes at APL will be amplified at Atlas Pipeline Holdings, L.P. (AHD). A reduction in distributions to the minimum level would effectively eliminate all IDR cash flows that AHD currently receives (~$36 million annualized). Unless APL engages in combination with AHD, distributions at AHD may have to be lowered to ~$0.16/unit.
Amplified Effect on AHD: While the situation at APL appears dire, the situation at the general partner Atlas Pipeline Holdings, L.P. (AHD) could be even worse. General partners such as AHD do not have any operations of their own and their primary asset comprises of incentive distribution rights (IDRs) in the MLP that allows the general partner to collect an increasing percentage of the cash flows as distributions at the MLP increase. This leverage works both ways. A distribution cut at the MLP will have a much larger impact at the general partner. Therefore should APL cut distributions to the minimum level as Citi is anticipating, distributions at AHD may have to be cut by over 90% to ~$0.16/unit as AHD will no longer receive IDR payments which are currently running at ~$36 million annually.
Notablecalls: Citi's call sounds pretty much like a death sentence for AHD (and of course APL). I would not be surprised to se AHD down $1+ on this call.
Firm notes Atlas Pipeline Partners, L.P. (NYSE:APL) has debt covenants that call for maintaining a Debt/EBITDA ratio of no more than 5.25x and EBITDA/Interest coverage of no less than 2.75x. In view of continued weakness in commodity prices and current debt levels ($1.4 billion net debt), APL could potentially be in violation of its covenants as early as Q1:09. Firm is lowering their target price on APL to $9.00 from $14.50.
Impact on AHD Amplified — As with other general partners, changes at APL will be amplified at Atlas Pipeline Holdings, L.P. (AHD). A reduction in distributions to the minimum level would effectively eliminate all IDR cash flows that AHD currently receives (~$36 million annualized). Unless APL engages in combination with AHD, distributions at AHD may have to be lowered to ~$0.16/unit.
Amplified Effect on AHD: While the situation at APL appears dire, the situation at the general partner Atlas Pipeline Holdings, L.P. (AHD) could be even worse. General partners such as AHD do not have any operations of their own and their primary asset comprises of incentive distribution rights (IDRs) in the MLP that allows the general partner to collect an increasing percentage of the cash flows as distributions at the MLP increase. This leverage works both ways. A distribution cut at the MLP will have a much larger impact at the general partner. Therefore should APL cut distributions to the minimum level as Citi is anticipating, distributions at AHD may have to be cut by over 90% to ~$0.16/unit as AHD will no longer receive IDR payments which are currently running at ~$36 million annually.
Notablecalls: Citi's call sounds pretty much like a death sentence for AHD (and of course APL). I would not be surprised to se AHD down $1+ on this call.
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