AT - Atlantic Power Corp

[mg0516]

has anyone looked at AT?

[bz1516]

Followed them only from a distance since giving them a hard look several years ago.  Met Barry at an investment presentation.  A good presenter, but no other impressions.  The issue with them is they had no margin for error in a capital intensive business, basically paying out their entire earnings in distributions.  Not sure how they recover after wandering off from their core business.

[mg0516]

I'll post full idea later but they've taken care of near term debt maturities and have a reasonably stable CF stream that will allow them to delever.  More to follow.

[JAllen]

I looked at this again.  It's odd they're paying a dividend but have all that debt.


I think this is one where they will VERY slowly delever over time, and will probably survive.  I don't know how shareholders do very well here though.  ATP stated that they didn't receive any bids higher than $3.04/share which makes the stock quite unexciting, unless you think they received bids for just less than that.


But my guess is the activist board seats mean that they truly can't sell the company for a desirable price now and so the activists want to make sure the debt gets paid down to recover some of their equity.  I think FCF is something like 2-3% of total debt.


I should note that the senior notes could be attractive at some point if there's distress in the sector (they trade at par now) - as they're the next major maturity and rank higher than most or all of the debt (haven't spent tons of time on the cap structure but know that many of the issues are junior).


But wow, they have some nice assets: gas, wind, and nuclear generation capability.  Berkshire buys some power from them and I'm sure evaluated buying the ATP.

[flesh]

Attached find a write up I did on AT. This is the type of write up I do on my larger positions and I don't usually share them. I thought I should contribute to the forum more as I have received a lot from it.

Hopefully things turn out as I see them.

Also, find below a recent Canadian power acquisition with a similar mix of hydro, gas, bio in terms of MW to Atlantic Power.

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aVSN-2445119&symbol=VSN&region=C

[rukawa]

They have an enterprise value of around 1.6 billion I think (1.2 billion debt, 400 million equity). 200 million in EBITDA. So EV/EBITDA is around 8 which is not especially cheap.

I think your investment case is based on repayment of the debt but I worry about the PPAs being renewed and unexpected capital expenditures.

I am never sure on how to value equity stubs. EV/EBITDA doesn't seem right since on that basis its possible for the equity to even go to zero and for the valuation to still be expensive. The optionality of the equity becomes very significant in situations like this. Somehow I don't think a 400 million reduction in the debt which would reduce the debt to 643 million in 2020 is that great of an expected outcome.

I also realize the comparable you posted sold for 12x EBITDA but to be honest I never really understood why utilities have such high valuations. Historically utilities had highly reliable cashflows and so could support lots of debt and had nice dividends. But that was back when rates where regulated. That isn't really the case anymore.

There is also a writeup on the VIC
https://www.valueinvestorsclub.com/idea/ATLANTIC_POWER_CORP/138824

[Cardboard]

If you had Jorge Paulo in charge of Atlantic Power, what would you revise in your post Rukawa?

Well, I would say that we got close to it.

Cardboard

[Sunrider]

I see they have two prefs outstanding - 4% and 7% that are both cumulative ... a slightly safer bet, or not worthwhile if the thesis is one of an equity stub anyway?
Thanks - C.

[petec]

I see they have two prefs outstanding - 4% and 7% that are both cumulative ... a slightly safer bet, or not worthwhile if the thesis is one of an equity stub anyway?
Thanks - C.

Depends - if the terminal value is zero (can't renew any PPAs) and they spend all the FCF on common buybacks then the prefs aren't safe either    

Also pref dynamics are very different: capital gains depend more on rates rising than on what happens at the company.

The advantage of the prefs is you have to have less confidence in PPA renewal and you get a nice jump to par if the company is sold (provided the buyer buys the prefs - maybe not if they just leave them outstanding).

[petec]

Attached find a write up I did on AT. This is the type of write up I do on my larger positions and I don't usually share them. I thought I should contribute to the forum more as I have received a lot from it.

Hopefully things turn out as I see them.

Also, find below a recent Canadian power acquisition with a similar mix of hydro, gas, bio in terms of MW to Atlantic Power.

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aVSN-2445119&symbol=VSN&region=C

Good report - thanks.   I have a note (not sure where I sourced it but probably a call transcript) that the NOLs can only be used in the individual company, not even across the AP group, and therefore presumably not by a buyer.   This may be out of date - I also have it that the value of the NOLs was $200m, so something's clearly changed - but might be worth checking.