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General Category => Investment Ideas => Topic started by: mg0516 on February 20, 2014, 01:25:53 PM

Title: AT - Atlantic Power Corp
Post by: mg0516 on February 20, 2014, 01:25:53 PM
has anyone looked at AT?
Title: Re: AT - Atlantic Power Corp
Post by: bz1516 on February 20, 2014, 05:28:33 PM
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.
Title: Re: AT - Atlantic Power Corp
Post by: mg0516 on March 03, 2014, 01:05:19 PM
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.
Title: Re: AT - Atlantic Power Corp
Post by: JAllen on December 03, 2014, 06:10:04 AM
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.
Title: Re: AT - Atlantic Power Corp
Post by: flesh on February 22, 2017, 12:19:46 PM
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


Title: Re: AT - Atlantic Power Corp
Post by: rukawa on February 22, 2017, 05:49:08 PM
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
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on February 22, 2017, 07:30:55 PM
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
Title: Re: AT - Atlantic Power Corp
Post by: Sunrider on February 22, 2017, 11:57:35 PM
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.
Title: Re: AT - Atlantic Power Corp
Post by: petec on February 23, 2017, 01:54:08 AM
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).

Title: Re: AT - Atlantic Power Corp
Post by: petec on February 23, 2017, 02:07:39 AM
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.
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on February 23, 2017, 03:21:34 AM
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.

There are three preferred actually. AZP.PR.A which is a perpetual fixed rate. AZP.PR.B which is a fixed reset and AZP.PR.C which is a floating reset. AZP.PR.B and AZP.PR.C are interconvertible every 5 years which makes the AZP.PR.C significantly more attractive at current prices, in my view.
Title: Re: AT - Atlantic Power Corp
Post by: awindenberger on February 23, 2017, 02:01:23 PM
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

Thanks for bringing this stock to my attention. I'm going to be taking a serious look at this.
Title: Re: AT - Atlantic Power Corp
Post by: Sunrider on February 24, 2017, 12:23:03 AM
Thank you.
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.

There are three preferred actually. AZP.PR.A which is a perpetual fixed rate. AZP.PR.B which is a fixed reset and AZP.PR.C which is a floating reset. AZP.PR.B and AZP.PR.C are interconvertible every 5 years which makes the AZP.PR.C significantly more attractive at current prices, in my view.
Title: Re: AT - Atlantic Power Corp
Post by: Saj on February 24, 2017, 03:18:49 PM
Their preferreds are some of the highest yielding available today. Here's a list I maintain by yield: http://www.conferencecalltranscripts.org/prefs/
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on February 24, 2017, 05:01:12 PM
That is a very good summary/analysis Flesh. However, I believe that you are too conservative on PPA's and their renewals. Simply said, where are current customers going to get their electricity from?

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: Sunrider on February 25, 2017, 12:55:07 AM
And they are cumulative, right? So unless you think the company goes under, not a bad bet.

Of course, if the company doesn't go under and even just continues to repay its debt it'll be much better to own common  :o

Their preferreds are some of the highest yielding available today. Here's a list I maintain by yield: http://www.conferencecalltranscripts.org/prefs/
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on February 25, 2017, 08:58:19 AM
And they are cumulative, right? So unless you think the company goes under, not a bad bet.

Of course, if the company doesn't go under and even just continues to repay its debt it'll be much better to own common  :o

Their preferreds are some of the highest yielding available today. Here's a list I maintain by yield: http://www.conferencecalltranscripts.org/prefs/

They are cumulative but the thing that makes AZP.PR.C and AZP.PR.B attractive is that they trade at a giant credit spread and they are floaters so there is a chance for credit spreads tighten and rates to go up which can result in very strong income and capital performance.
Title: Re: AT - Atlantic Power Corp
Post by: flesh on February 25, 2017, 01:01:29 PM
I have very little to add.

1. Are all ev multiples created equal? Choose a 8x ev multiple that consisted of 20% common equity or 80% common equity?

2. Many on this forum were interested in zinc and outr, missing the forest for the trees. The trees were the deep competitive advantages, the forest was virtually no way to predict future cash flows. How likely is it AT's common equity is permanently impaired? Is the risk reward high or low? Have you tried to kill it, or did your programming kick in before the work was done? At the time, outr was spending massively on buybacks, I thought they should pay down debt. At is using 80% of cash flows for debt, next four years, also has individual assets to sell opportunistically to raise cash to accelerate debt repayments. Plus, hydro may be there for decades. MGMT has not made ONE decision that I would not have made myself.

3. I use draconian assumptions because I know that I don't know. If I like an investment after using conservative numbers, they almost always turn out very well. OTOH, It may be helpful for me to try to think more accurately by elucidating what I believe will happen and receiving that feedback in the fullness of time.

Cardboard, I'll look into that. Thanks.



Title: Re: AT - Atlantic Power Corp
Post by: Sunrider on February 26, 2017, 01:52:42 AM
These Draconian assumptions notwithstanding (agree with the approach) - what do you make of the fact that management increased it's own incentive plan by more than half from 2015 year end AND lowered the exercise price? Seems like self-dealing and they're all nicely in the money now?

C.


I have very little to add. In fact, I'll be purposefully not visiting this thread in the future, for my own sake. My biggest mistake thus far has been not holding due to others influences. As always, my success doesn't require others belief and generally others beliefs underestimate my success. This will be my epitaph.

1. Are all ev multiples created equal? Choose a 8x ev multiple that consisted of 20% common equity or 80% common equity?

2. Many on this forum were interested in zinc and outr, missing the forest for the trees. The trees were the deep competitive advantages, the forest was virtually no way to predict future cash flows. How likely is it AT's common equity is permanently impaired? Is the risk reward high or low? Have you tried to kill it, or did your programming kick in before the work was done? At the time, outr was spending massively on buybacks, I thought they should pay down debt. At is using 80% of cash flows for debt, next four years, also has individual assets to sell opportunistically to raise cash to accelerate debt repayments. Plus, hydro may be there for decades. MGMT has not made ONE decision that I would not have made myself.

3. I use draconian assumptions because I know that I don't know. If I like an investment after using conservative numbers, they almost always turn out very well. OTOH, It may be helpful for me to try to think more accurately by elucidating what I believe will happen and receiving that feedback in the fullness of time.

Cardboard, I'll look into that. Thanks.

Regardless of my valuation, if I had to guess, we wouldn't hit 5+/share for 3 years unless the company is sold outright. That is acceptable to me.
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on February 26, 2017, 01:33:08 PM
Just in case some members had been un-aware, but Cardboard actually started a thread on this stock (albeit the pref) about 14 months ago.

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/azp-pr-b-atlantic-power-corp-preferreds/

The CEO was names in an article last April in the WSJ titled "16 favorite annual letters"

http://blogs.wsj.com/moneybeat/2016/04/01/16-favorite-annual-letters-from-an-investor-whos-read-more-than-1000/

Atlantic Power – “The Outsiders is one of my all-time favorite investing books, so I was immediately intrigued by this reference.  Discussion of corporate overhead is excellent and supports the CEO’s claim that he cares more about growing per-share intrinsic value than enlarging his managerial fiefdom.  A CEO who moves corporate HQ from Boston’s financial district to a much smaller space in suburbia is my kind of guy!”
Title: Re: AT - Atlantic Power Corp
Post by: Larry on February 26, 2017, 02:33:22 PM
This is an interesting pick, thanks for the write up. I did some research on the company over the weekend and went through some of the recent conference calls and presentations. If they can keep up the cash flow and continue to pay down debt and repurchase some common this could do well.

Just couple of points: Whats the difference between EBITDA and Project Adjusted EBITDA, for example I got 30,5M of EBITDA from gurufocus for Q3 but on their call they presented Project Adjusted EBITDA which was 51,3M. Im sorry if the reconciliation is somewhere but I went through their 2015 annual report and couldn't find whats the difference.

The CEO seems decent, talks a lot about capital allocation. Also he says that they are operating in a cyclical industry. I guess he specifically refers to power prices being volatile? I think the ultimate demand for electricity is quite stable. We have been experiencing very low spot rates here in Scandinavia for a few years too but I guess that's just a coincidence..
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on February 26, 2017, 06:28:53 PM
In speaking with the CEO, he seems really excited by the possibility of not only getting a transfer of value from debt to equity but also getting a move higher in power prices and multiple expansion. The trifecta makes things really interesting. One thing that supported the idea is that asset sales prices are well ahead of current EV/EBITDA multiples suggesting the public market has a lower valuation than the private market which should rationalize over time (one way or another!).

I own a lot of the AZP.PR.C so I haven't bought the equity yet but I did buy Calpine (CPN.N) under a similar thesis.
Title: Re: AT - Atlantic Power Corp
Post by: rukawa on February 26, 2017, 09:30:14 PM
And they are cumulative, right? So unless you think the company goes under, not a bad bet.

Of course, if the company doesn't go under and even just continues to repay its debt it'll be much better to own common  :o

Their preferreds are some of the highest yielding available today. Here's a list I maintain by yield: http://www.conferencecalltranscripts.org/prefs/

I don't really get the logic of owning the common. I feel like the preferreds are the better risk/reward.
Title: Re: AT - Atlantic Power Corp
Post by: Sunrider on February 27, 2017, 04:18:14 AM
17ish will go to 25 par with a 6% dividend.

For the common - if you keep EV constant and assumed PPAs just roll off as per schedule and otherwise everything gets paid, you end up with ca. $300m ish of cash generated that would go towards debt reduction. That's 300m on top of current market cap of ca. 250 - 300m (depending on what you take into diluted shares). A bit better than pref.

If the company goes belly up, you're one step up in the capital structure but at that point you'd have to be convinced there's enough value in the recovery for anything to go to pref.

Chose your poison. :o


And they are cumulative, right? So unless you think the company goes under, not a bad bet.

Of course, if the company doesn't go under and even just continues to repay its debt it'll be much better to own common  :o

Their preferreds are some of the highest yielding available today. Here's a list I maintain by yield: http://www.conferencecalltranscripts.org/prefs/

I don't really get the logic of owning the common. I feel like the preferreds are the better risk/reward.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on February 27, 2017, 07:07:13 AM
The trade was to start by buying the convertibles (which I didn't do), then the preferreds and now I would say it is the common's turn.

When I got into the preferreds they were trading around $10. Now both AZP.PR.B and AZP.PR.C have moved up by over 60% without counting the dividends. The discount to par, better tax treatment of dividends vs interest is likely why I passed on the debentures but, I would have made more money by buying the debs first.

Today, the enormous discount to par and spread to other preferreds from utilities/power producers in Canada has been largely reduced. To get to par you would also need the entire preferreds complex to move up which becomes a macro thing.

Currently, I still own some AZP.PR.C and ATP. What I like is that the entire position interest cost is funded entirely by dividends from the preferreds. And the margin requirement on the common is better than the preferreds at my broker or 30% and 50% respectively.

While it made zero sense to look at the common when I bought the preferreds, I think today it is different. Improvements have continued, I am even more confident in management than I was back then and the potential in the common vs preferreds is now too large to ignore. This thing has all the hallmarks of a successful turnaround and what is nice is that you could move down the capital structure as the story played out while normally you miss out on of them as the price of one move up too rapidly.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: awindenberger on February 27, 2017, 01:34:25 PM
In speaking with the CEO, he seems really excited by the possibility of not only getting a transfer of value from debt to equity but also getting a move higher in power prices and multiple expansion. The trifecta makes things really interesting. One thing that supported the idea is that asset sales prices are well ahead of current EV/EBITDA multiples suggesting the public market has a lower valuation than the private market which should rationalize over time (one way or another!).

I own a lot of the AZP.PR.C so I haven't bought the equity yet but I did buy Calpine (CPN.N) under a similar thesis.

How recently did you speak to the CEO?
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on February 27, 2017, 04:34:07 PM
It was the last AGM.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on March 02, 2017, 06:10:26 PM
They missed their project EBITDA guidance with $202.2 million vs $205-$215 million for the year due to a few one time items but, I really like their 2017 guidance at $225-$240 million:

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2449090&symbol=ATP&region=C

As they follow their plan to repay $150 million or more of debt in 2017, the thesis of shifting EV to shareholders vs debt holders will really start to play out. I would expect debt upgrades along the way too.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 02, 2017, 09:02:12 PM
With only about 115m shares outstanding, its not hard to move the needle!
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 03, 2017, 04:56:50 AM
Management posted its prepared remarks from the upcoming conference call.

Good reading from page 25 on how the CEO thinks about the business.

https://s3.amazonaws.com/filecache.drivetheweb.com/mr5ir_atlanticpower/195/download/03.02.2017+ATP+Q4+2016+Prepared+Remarks+FINAL.pdf
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 03, 2017, 06:53:36 AM
Conference call was pretty interesting. My favourite part was suggesting if they had debt levels at their long term targets they would do a substantial issuer bid versus the slower normal course issuer bid they are doing now.

Well based on their guidance, they will be at 4x debt/EBITDA by year end so that should open them up to doing a SIB next year potentially.
Title: Re: AT - Atlantic Power Corp
Post by: flesh on March 07, 2017, 12:38:49 AM
A nice tidbit from the prepared remarks.

"A few brief remarks on growth before closing. At Atlantic Power, we have a
management team that has a long and successful track record of growing power
businesses. Until recently, however, the Company has not had the financial
strength to credibly pursue growth. We now believe we have the capacity to
consider modest investments, but the wholesale power market is for the most part
still frothy.
One key trend that we’ve observed is that wholesale power prices have come down
significantly but industrial customer rates have been sticky. Organic development
of new long-term contracted plants with industrial customers (under which we
would sell heat and power) is expected to provide a better risk-return profile than
wholesale market opportunities. We have expertise in this area, including
operations, fuel supply management and knowledge of merchant power markets, as
well as strong relationships with industrial customers at several existing sites.
The smaller size of the projects would also fit better with our capital availability.
We’re in the early stages of implementing this strategy, and we don’t expect to
have anything concrete to report for a while. "

"Morris was our first significant PPA renewal in several years. The run rate
EBITDA contribution under the PPA extension with our industrial customer is
more attractive than what we have seen from utilities. Understand, though, that the
existing PPAs provide for a return of and on our capital to finance construction.
Interest rates were much higher when they were signed. From a customer
standpoint, our original investment in the plants has been recovered and therefore
the cost of power from our plants should be lower on a renewal. However, for
some of our plants, an extension of the PPA will require that we make incremental
investment in the plant. We will require good returns on this incremental
investment or we won’t do those deals.
PREPARED REMARKS
Q4/YEAR END 2016
36
The larger point is that in the United States, the high penetration rate of
intermittent power sources has kept retail rates (end-user prices) high at the same
time that wholesale power prices have declined by forty percent or so
in some
cases. We have, therefore, shifted our focus toward the industrial markets. We are
working with industrial customers at our existing facilities to provide them lowcost,
reliable, clean power. We also have begun to seek new plant opportunities
with other industrial customers. We think that this makes sense based on the
current structure of the power markets and it is a market segment that is well
within our core competencies, while the investments are of a size that will attract
less interest from the large IPP players but which can move the needle for Atlantic
Power. We have begun to allocate some of our people in this direction and as we
proceed we may add some development expense which would be very modest in
2017. We will be putting in mostly sweat equity at this point. Depending on how
things evolve, we ought to be able to give a more specific update at the end of the
year.
When we worked together previously, Joe Cofelice and I were able to capture $160
million of value from private transactions by growing off a much smaller capital
and resource base than we have at Atlantic Power. That isn’t a forecast but it
points out that here we have adequate resources and experience to grow this
business. If we are successful, we would then have a fourth case which would be
GROWTH to go along with the other cases. It is too early to make any promises
on this front but we are very enthusiastic about this effort."
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 08, 2017, 10:07:15 PM
Decent insider buy from Mr. Colefice.

https://www.canadianinsider.com/company?ticker=ATP
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 09, 2017, 06:44:29 PM
New article on Seeking Alpha

http://seekingalpha.com/article/4053875-atlantic-power-awesome-turnaround?v=1489098583&comments=show
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on March 14, 2017, 12:31:49 PM
AZP.PR.A has now lagged so much vs the other preferreds that it is now the best bet unless you can predict with certainty higher Canadian interest rates.

It now yields 8.25% in perpetuity vs 7.75% for AZP.PR.B and 6.9% for AZP.PR.B. Even if you adjust for AZP.PR.C catching up to the price of the AZP.PR.B in December 2019, the overall return is very similar. Some may argue that it is slightly better on a taxation standpoint but, I would not want to bet that AZP.PR.B will yield more than AZP.PR.A going into the future. You are paying 0.5% to simply bet that interest are going to move up. Hmmm...

It also has the largest gap to par trading at $14.75 vs $18.20 and $17.25 respectively. So if there is some buyback, I would think that it is where the company would repurchase first.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 14, 2017, 04:01:12 PM
I see the AZP.PR.C still having an additional ~75bp return to conversion vs AZP.PR.B so it's meaningful and slightly higher than AZP.PR.A.

You are right though that AZP.PR.A might be better if you think buyback will be focused there, if the company will be bought out or if you think rates are going lower.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on March 14, 2017, 05:18:21 PM
The way I do the math is that I look at all distributions that should be received over a 5 year period divided by 5, then divided by the price of the security that I am looking at. It gives me a yield or approximation be able to compare them. For the "C"'s, I assume conversion into the "B"'s in December 2019, the gain added as a distribution, followed by what the "B"'s would pay in distribution over the remaining period using current interest rates for the reset.

So based on today's close (and it has changed since my e-mail since the spread is large between bid/ask and where they end up trading) and current interest rates I get:

AZP.PR.B: 7.39%
AZP.PR.C: 8.58%
AZP.PR.A: 8.20%

So the "C"'s have a slight edge over the "A"'s looking through a 5 year period. However, that is again assuming that the "B"'s will keep on trading at a current yield of 7.45% which is 75 bp lower than the "A"'s. Seems like a lot of premium to me and the "C"'s are only attractive because of the "catch-up" to the "B"'s on the exchange in almost 3 years. And if I was running a DCF analysis, the "A"'s would look even better because they pay more right now.

So the discount to par is not even a major consideration. It is icing on the cake.

I never thought that I would look at the "A"'s but, they have lagged so much the other two that now it is different.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: gokou3 on March 17, 2017, 11:08:23 PM
I bought AT and AZP.PR.A earlier this week.  After going through this and the preferred threads (thanks for the great analyses!), Q4 transcripts, presentation, etc., I wish I had learned about this company earlier.  I think the consensus on this board is that the common is an equity stub of a company deleveraging quickly.  I figure that the equity value will be at least US$3.5 even under very draconian assumptions. In my model, I assume all cashflows go to debt repayment, no share purchases, no inflation, no asset sale, no debt interest rate improvement, no PPA renewal, and constant G&A / tax / capex.  I did assume a gradual increase in EV/EBITDA ratio.

One decent positive news that has not yet been discussed is the pending "windfall" stemming "from the Global Adjustment litigation brought by a group of Non-Utility Generators against the OEFC, which was decided in favor of the plaintiffs by the Superior Court of Canada." Per the "subsequent event" section of the 2016Q4 earning release, "the Company will be receiving a payment of approximately Cdn$8.4 million for its Kapuskasing and North Bay plants representing the application of the price escalator calculation under their respective PPAs for power sold to OEFC in 2016."

So two plants being offered C$8.4M for one year of the PPA (2016).  There's also a third plant (Tunis) that is also eligible for this adjustment.  Furthermore, adjustments are possible for the years 2011-2017 as well.  So extrapolating this offer to 3 plants over multiple years, the company could be looking at settlement in the ballpark of C$60-80M.  This is a pretty decent amount for a company with US$300M market cap.  Management said timing and amount are uncertain but I can't imagine this will take more than a year to close.  This amount of money if received soon enough can really pull forward the redemption of the debentures and then the common share repurchases.

Any thoughts?

Title: Re: AT - Atlantic Power Corp
Post by: flesh on March 18, 2017, 04:29:08 AM
I agree it could be huge, I put it in the bonus file. If the settlement is in the 10's of millions it will pull forward the equity/debt ev mix quickly.

Also, all the news is out now for ppa's through 12/2019 in terms of where they stand currently whereas before they were a potential red flag for investors. In otherwords, it should be priced in from now. In general I saw the last ec as a net neutral, pluses and minuses to my expectations and until there is some clear positive news will remain so. That said, it's very hard to see the equity not eclipsing 5/share in the next 2-3 years. There's a bull case for much better.

Cheers.
Title: Re: AT - Atlantic Power Corp
Post by: netnet on March 18, 2017, 05:28:45 PM
So it seems to me that what we have is


What would kill this idea:
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on March 19, 2017, 05:06:46 PM
Management is clearly great.   I'm just having trouble with valuation?   

Using 12/31/2016 numbers:

201.9 Total Project Level Adjusted EBITDA
-22.6 SG&A
-2.9 Capex (Slide 40 16Q4 earnings)
-86.7 Interest Expense (106mm corp + 10.9mm project level - 30.9 def financing charge)
= 89.7 FCF

1132 = Total Debt + Pref - Cash
1411 = 89.7 FCF + 86.7 Future Interest Expense Savings * 8x multiple
279 = Common Value
2.44 = Per Share Value (114mm shares)

Why would this company be worth anything more than 8x?   Ultimately this comes down to whether you think it's worth 8x or 10x which doesn't provide a ton of margin of safety.   The stub is highly sensitive to whatever discount rate you apply.   I suppose you could apply a higher multiple to the Hydro's cash flows based on the CEO's comments.

Also, it's difficult to become comfortable when 30% of Project Level EBITDA expires within the next 5 years.  This isn't news to anyone, but I'm struggling with how those who own the commons are comfortable aside from management being value oriented?   The preferreds seem much more attractive to me.   
Title: Re: AT - Atlantic Power Corp
Post by: gokou3 on March 19, 2017, 10:29:24 PM
Management is clearly great.   I'm just having trouble with valuation?   

Using 12/31/2016 numbers:

201.9 Total Project Level Adjusted EBITDA
-22.6 SG&A
-2.9 Capex (Slide 40 16Q4 earnings)
-86.7 Interest Expense (106mm corp + 10.9mm project level - 30.9 def financing charge)
= 89.7 FCF

1132 = Total Debt + Pref - Cash
1411 = 89.7 FCF + 86.7 Future Interest Expense Savings * 8x multiple
279 = Common Value
2.44 = Per Share Value (114mm shares)

Why would this company be worth anything more than 8x?   Ultimately this comes down to whether you think it's worth 8x or 10x which doesn't provide a ton of margin of safety.   The stub is highly sensitive to whatever discount rate you apply.   I suppose you could apply a higher multiple to the Hydro's cash flows based on the CEO's comments.

Also, it's difficult to become comfortable when 30% of Project Level EBITDA expires within the next 5 years.  This isn't news to anyone, but I'm struggling with how those who own the commons are comfortable aside from management being value oriented?   The preferreds seem much more attractive to me.

It's true that EBITDA is expected to decline in the next 5 years, but also consider the value transfer from debt to equity as debt is paid down.  For example, management guided to a potential EBITDA drop of $60M in 3 years, i.e. from $200 in 2016 to $140M.  They also guided to a $400M debt pay down, thus from $1000M to $600M.  So, assuming EV/EBITDA=8 (comparable to peers currently), you would have EV = $1120.  Equity value would then be $1120-$600 = $520M or $4.5 per share.  You should reach a similar conclusion with the EV/FCF metric.

I would agree that the preferred is a much safer bet, especially with management having a meaningful stake in the lower-ranked common.



Title: Re: AT - Atlantic Power Corp
Post by: gokou3 on March 19, 2017, 10:36:32 PM
What puzzles me is that retail electricity prices have gone up while wholesale prices (received by the IPP) are much lower.  How did that happen and who pockets the difference?  I imagine some has gone to the subsidy of renewable energy producers but is that it?

See example here for the Ontario market:
http://business.financialpost.com/news/energy/ontario-manufacturers-eye-greener-pastures-stateside-as-hydro-rates-go-through-the-roof
Title: Re: AT - Atlantic Power Corp
Post by: Neversummer on March 20, 2017, 04:40:15 AM
Everyone keeps pointing to the preferreds as a significantly safer bet than the common. In reality are they? It is my understanding they are issued out of one of the two main subs with no claim on the parent holdco so if the company were ever to file or shut down that sub the common would still have a cash flow back from the other sub. To me the prefs then seem like a sub bond issued out of a non recourse subsidiary. I am not saying the prefs may still not be safer but I could draw a scenario where the common has value and the prefs are a zero. Am I missing something?
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on March 20, 2017, 06:55:54 AM
"The Series 1 Shares, the Series 2 Shares and the Series 3 Shares are fully and unconditionally guaranteed by us
and by the Partnership on a subordinated basis as to: (i) the payment of dividends, as and when declared; (ii) the
payment of amounts due on a redemption for cash; and (iii) the payment of amounts due on the liquidation, dissolution
or winding up of the subsidiary company. If, and for so long as, the declaration or payment of dividends on the Series 1
Shares, the Series 2 Shares or the Series 3 Shares is in arrears, the Partnership will not make any distributions on its
limited partnership units and we will not pay any dividends on our common shares."

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: Neversummer on March 20, 2017, 07:26:30 AM
well then that sums that up :) thanks for fixing my brain
Title: Re: AT - Atlantic Power Corp
Post by: winjitsu on March 31, 2017, 11:26:10 AM
Management is clearly great.   I'm just having trouble with valuation?   

Using 12/31/2016 numbers:

201.9 Total Project Level Adjusted EBITDA
-22.6 SG&A
-2.9 Capex (Slide 40 16Q4 earnings)
-86.7 Interest Expense (106mm corp + 10.9mm project level - 30.9 def financing charge)
= 89.7 FCF

1132 = Total Debt + Pref - Cash
1411 = 89.7 FCF + 86.7 Future Interest Expense Savings * 8x multiple
279 = Common Value
2.44 = Per Share Value (114mm shares)

Why would this company be worth anything more than 8x?   Ultimately this comes down to whether you think it's worth 8x or 10x which doesn't provide a ton of margin of safety.   The stub is highly sensitive to whatever discount rate you apply.   I suppose you could apply a higher multiple to the Hydro's cash flows based on the CEO's comments.

Also, it's difficult to become comfortable when 30% of Project Level EBITDA expires within the next 5 years.  This isn't news to anyone, but I'm struggling with how those who own the commons are comfortable aside from management being value oriented?   The preferreds seem much more attractive to me.

FCF overwhelming accrues to the equity holders rather than the preferred holders. On $89.7M of FCF, only $9M is going preferred holders, leaving ~$80M to Equity. At a common value of ~$300M, that's 3.7x FCF. This is how I think about it anyways. 

Preferred vs Common comes down to if/when you think management will redeem the shares. As others have brought up, a levered preferred position may have better risk/return characteristics.
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on April 03, 2017, 07:12:03 PM
Management is clearly great.   I'm just having trouble with valuation?   

Using 12/31/2016 numbers:

201.9 Total Project Level Adjusted EBITDA
-22.6 SG&A
-2.9 Capex (Slide 40 16Q4 earnings)
-86.7 Interest Expense (106mm corp + 10.9mm project level - 30.9 def financing charge)
= 89.7 FCF

1132 = Total Debt + Pref - Cash
1411 = 89.7 FCF + 86.7 Future Interest Expense Savings * 8x multiple
279 = Common Value
2.44 = Per Share Value (114mm shares)

Why would this company be worth anything more than 8x?   Ultimately this comes down to whether you think it's worth 8x or 10x which doesn't provide a ton of margin of safety.   The stub is highly sensitive to whatever discount rate you apply.   I suppose you could apply a higher multiple to the Hydro's cash flows based on the CEO's comments.

Also, it's difficult to become comfortable when 30% of Project Level EBITDA expires within the next 5 years.  This isn't news to anyone, but I'm struggling with how those who own the commons are comfortable aside from management being value oriented?   The preferreds seem much more attractive to me.

FCF overwhelming accrues to the equity holders rather than the preferred holders. On $89.7M of FCF, only $9M is going preferred holders, leaving ~$80M to Equity. At a common value of ~$300M, that's 3.7x FCF. This is how I think about it anyways. 

Preferred vs Common comes down to if/when you think management will redeem the shares. As others have brought up, a levered preferred position may have better risk/return characteristics.


It's 3.7x FCF assuming Revenue stays the same.  I think that's the big "if"...    How do you have full confidence they can renew enough of their PPA's to be able to pay their debt down in full?   

Last time I looked at this, I basically took all of their PPAs and assumed renewal at 50% of current project level EBITDA at the next expiration.   This exercise made it seem questionable whether or not they can repay their debts through the next 5 years.   
Title: Re: AT - Atlantic Power Corp
Post by: winjitsu on April 03, 2017, 09:27:03 PM

It's 3.7x FCF assuming Revenue stays the same.  I think that's the big "if"...    How do you have full confidence they can renew enough of their PPA's to be able to pay their debt down in full?   

Last time I looked at this, I basically took all of their PPAs and assumed renewal at 50% of current project level EBITDA at the next expiration.   This exercise made it seem questionable whether or not they can repay their debts through the next 5 years.

Absolutely, but such a low number is what makes the equity interesting in the first place.

From Q4 Prepared Remarks:

"Although we have not shown projected leverage ratios on this slide, we believe that, assuming debt repayment of $150 million, we will be approximately 4 times levered by year end 2017 as compared to 5.6 times currently. By the end of 2020 we expect to be less than 4 times levered, or close to what we view as an appropriate level of leverage for this business."

Why do they need to pay down debt in full? From the quote above, they're targeting 4x leverage ratio (they define as debt / project ebitda - sga) as something that they're comfortable with long term. Also as outlined in slide 19 in the Q4 deck, they will have to roll over some of the maturities over the next 2-3 years, so in a sense you're right, but not sure why that's damning. Keep in mind, not all of the debt is recourse...

Despite not giving guidance to PPA renewal values, the company has basically given soft guidance to 2020 earnings. They expected to retire $400M of debt, leaving the company with $638M. At 4x leverage, the company is guiding towards $160M in EBITDA - SGA. Assuming $20M in SGA, thats ~$180M EBITDA.

Working off $160M (EBITDA - SGA), assuming $10M Capex, $50M Interest (~8% on $632M debt), that's still $100M in 2020 FCFE, of which $90M is going to common. Not to mention at this point, they'll be investing for growth. Slap on whatever multiple you want, but the bull case certainly has merits.



Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on April 04, 2017, 05:04:38 AM

It's 3.7x FCF assuming Revenue stays the same.  I think that's the big "if"...    How do you have full confidence they can renew enough of their PPA's to be able to pay their debt down in full?   

Last time I looked at this, I basically took all of their PPAs and assumed renewal at 50% of current project level EBITDA at the next expiration.   This exercise made it seem questionable whether or not they can repay their debts through the next 5 years.

Absolutely, but such a low number is what makes the equity interesting in the first place.

From Q4 Prepared Remarks:

"Although we have not shown projected leverage ratios on this slide, we believe that, assuming debt repayment of $150 million, we will be approximately 4 times levered by year end 2017 as compared to 5.6 times currently. By the end of 2020 we expect to be less than 4 times levered, or close to what we view as an appropriate level of leverage for this business."

Why do they need to pay down debt in full? From the quote above, they're targeting 4x leverage ratio (they define as debt / project ebitda - sga) as something that they're comfortable with long term. Also as outlined in slide 19 in the Q4 deck, they will have to roll over some of the maturities over the next 2-3 years, so in a sense you're right, but not sure why that's damning. Keep in mind, not all of the debt is recourse...

Despite not giving guidance to PPA renewal values, the company has basically given soft guidance to 2020 earnings. They expected to retire $400M of debt, leaving the company with $638M. At 4x leverage, the company is guiding towards $160M in EBITDA - SGA. Assuming $20M in SGA, thats ~$180M EBITDA.

Working off $160M (EBITDA - SGA), assuming $10M Capex, $50M Interest (~8% on $632M debt), that's still $100M in 2020 FCFE, of which $90M is going to common. Not to mention at this point, they'll be investing for growth. Slap on whatever multiple you want, but the bull case certainly has merits.

The bull case absolutely has merits, but there is limited downside protection in the event management is wrong with respect to their targets / soft guidance / ability to renew PPAs on favorable terms.   You could value the hydros using PMV for the assets, but I doubt you're getting over 13x ebitda on those.

To me this is an investment largely on management and a medium term rise in commodity prices.   Economics of the business will trump managements soundness. 

I do see your thesis as one potential likely outcome but I'm having trouble understanding why the risk/reward is assymetrical.
Title: Re: AT - Atlantic Power Corp
Post by: flesh on April 17, 2017, 02:07:10 PM
Booms.

http://investors.atlanticpower.com/2017-04-17-Atlantic-Power-Announces-Repricing-of-APLP-Holdings-Term-Loan-and-Revolver

"The interest rate margin on the term loan and revolver has been reduced by 75 basis points to LIBOR plus 425 basis points.  The LIBOR floor remains at 1.00%.  The mandatory 1% annual amortization and cash sweep provisions of the term loan are unchanged. 

As a result of the repricing, the Company expects to realize interest cost savings for the remainder of 2017 of $2.4 million, net of fees related to the transaction that will be recorded in the second quarter.  Cumulative savings through the maturity dates of the term loan (April 2023) and revolver (April 2021) are estimated to be approximately $17 million, net of transaction fees. "

Title: Re: AT - Atlantic Power Corp
Post by: flesh on April 28, 2017, 11:29:33 AM
After thinking long and hard about this one, my enthusiasm has waned a bit. I've run a few more valuation scenarios and the short version is that, imho fwiw, seeing 5/share plus will require some combination of:

1. The market valuing the company on a current multiple vs dcf basis sometime in the next few years.

2. Mgmt finding successful growth opportunities.

3. Buy backs of common at lower than current prices/tender offer at current or better common prices.

4. Higher power prices

5. Out right sale

6. Short term lengthening of near term ppa's at current rates allowing for better future terms as interest rates/power prices increase

7. Mgmt under promising and over delivering on next five year ppa's renewal expectations.

Feel free to add to this list or change my mind.

I've reduced this to a medium size position from a large one (20%-10%). I still own a large amount of preferred's.

I've never posted an idea and so I thought I should share my thoughts, although I understand many of you are much sharper/ more experienced than I. I do still view this as asymmetric, however I believe seeing more than nominal upside from here may require some of the above.


Annual report released today. 27m USD being received from OEFC below.

https://s3.amazonaws.com/filecache.drivetheweb.com/mr5ir_atlanticpower/196/ATP+2016+Annual+Report.pdf

Dear Shareholder,
Since we communicated our fourth quarter and year-end 2016 results in early March, there have
been some significant positive developments:
OEFC revenue adjustment. We now have an estimate of the revenues we expect to receive as a
result of the Global Adjustment litigation against the Ontario Electricity Financial Corporation
(OEFC), the customer for our power plants in Ontario. We were not a party to this litigation but we
have a standstill agreement with the OEFC that protects our right to make a claim for our three
affected plants. The total of payments received in the first quarter of 2017, a lump sum payment
expected to be received shortly, and higher payments on two of the plants in the remainder of 2017 is
approximately Cdn$36 million or US$27 million. This amount will add significantly to our year-end
2016 parent company cash balance of approximately $60 million.
Repricing of term loan and revolver. Earlier this month, we successfully executed a repricing of
our senior secured term loan, which had an outstanding balance of $615 million as of March 31, and
our $200 million corporate revolving credit facility, both of which were originally issued in April 2016.
We were able to reduce the spread by 75 basis points to LIBOR plus 425 basis points. This is expected
to generate cumulative savings of approximately $17 million, net of transaction fees, through the
maturity dates of the term loan and the revolver.
Piedmont. We have made significant progress in completing a required amendment to Piedmont’s
Title V air permit. Once this matter is resolved, we expect to conclude our evaluation of whether to
pursue a sale of this plant, or continue to own it and either refinance the project debt, which has an
August 2018 maturity, or pay it down using our liquidity. If we were to sell Piedmont, we expect it
would generate net proceeds in excess of the project debt repayment that would add to the cash totals
I cited above. We are under no pressure to sell any assets absent compelling terms, so we will take a
disciplined approach to evaluating these options.
This year’s letter is divided into three sections: first, a discussion of how we think about the
business; second, a summary of our 2016 results; and third, a review of the progress we have made in
our corporate turnaround efforts in 2015 and 2016. The first section is very similar to my prepared
remarks for our fourth quarter and year-end conference call, when I said we had decided to provide
the commentary early rather than holding it a month for this Annual Report (see the Investors page of
our website under ‘‘Presentations’’ for the complete text of these remarks).
Title: Re: AT - Atlantic Power Corp
Post by: winjitsu on April 28, 2017, 11:33:59 AM
You would think the stock would respond more to the past two news events ¯\_(ツ)_/¯
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on April 28, 2017, 01:21:52 PM
The problem I continue to have here is that I don't view this as necessarily an "asymmetric" opportunity in terms of upside/downside.   Upside is probably $5-6 and downside is $0 for the equity.    Although I would say upside likelihood is probably > downside.   But where's the margin of safety?
Title: Re: AT - Atlantic Power Corp
Post by: flesh on April 28, 2017, 01:29:02 PM
The problem I continue to have here is that I don't view this as necessarily an "asymmetric" opportunity in terms of upside/downside.   Upside is probably $5-6 and downside is $0 for the equity.    Although I would say upside likelihood is probably > downside.   But where's the margin of safety?

Could you please provide your most realistic framework for equity = 0?

Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on April 28, 2017, 01:40:59 PM
The problem I continue to have here is that I don't view this as necessarily an "asymmetric" opportunity in terms of upside/downside.   Upside is probably $5-6 and downside is $0 for the equity.    Although I would say upside likelihood is probably > downside.   But where's the margin of safety?

Could you please provide your most realistic framework for equity = 0?

I don't have my detailed model in front of me and am not an expert on the company (so I welcome any insight you have).   A couple months ago I simply took current cash flows, by project, and assumed that 50% of project-level EBITDA would be cut at expiry/renewal.   I then compared the total cash flow stream under that scenario to the debt maturity repayment schedule, and the debt was > sum of all cash flows under that period.

Maybe 50% is too draconian, but I am not an expert in commodity prices (I don't think anyone is).   Also, perhaps assuming no terminal value for the hydro plants (assuming a sale occurs when it becomes obvious they cannot repay debts) is too draconian.   

I follow it closely because I do think management is solid and is doing everything a rational shareholder would do.   I  would just likely pay a higher price and accept less upside/less risk once some of these renewals actually come to fruition.   
Title: Re: AT - Atlantic Power Corp
Post by: flesh on April 28, 2017, 02:15:33 PM
The problem I continue to have here is that I don't view this as necessarily an "asymmetric" opportunity in terms of upside/downside.   Upside is probably $5-6 and downside is $0 for the equity.    Although I would say upside likelihood is probably > downside.   But where's the margin of safety?

Could you please provide your most realistic framework for equity = 0?

I don't have my detailed model in front of me and am not an expert on the company (so I welcome any insight you have).   A couple months ago I simply took current cash flows, by project, and assumed that 50% of project-level EBITDA would be cut at expiry/renewal.   I then compared the total cash flow stream under that scenario to the debt maturity repayment schedule, and the debt was > sum of all cash flows under that period.

Maybe 50% is too draconian, but I am not an expert in commodity prices (I don't think anyone is).   Also, perhaps assuming no terminal value for the hydro plants (assuming a sale occurs when it becomes obvious they cannot repay debts) is too draconian.   

I follow it closely because I do think management is solid and is doing everything a rational shareholder would do.   I  would just likely pay a higher price and accept less upside/less risk once some of these renewals actually come to fruition.

If you look at my original valuation, subract what you will for renewals, add 17m recently reported interest savings, add 27m oefc payment, add current discretionary cash plus fcf from now until 2023 and I think you will find equity zero is not the case. Additionally, piedmont can be sold for greater than 50m. Also, refinancing over time as debt metrics are reduced significantly, wouldn't be an issue.

Adding one more thought, after investing in many debt laden companies with great success, TSE at 15/share as an example, it may be helpful to point out that there's a general market perception that tends to skew these companies optically. Obviously, different companies are allowed different debt profiles, say liberty global vs a cyclical. Second, perception can change quickly as a companies debt comes more in line with it's equity causing ev multiples to expand. It seems as debt/equity ratio's are reduced any good news is amplified, in AT's case this may take awhile, I don't know.
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on April 28, 2017, 02:24:19 PM
The problem I continue to have here is that I don't view this as necessarily an "asymmetric" opportunity in terms of upside/downside.   Upside is probably $5-6 and downside is $0 for the equity.    Although I would say upside likelihood is probably > downside.   But where's the margin of safety?

Could you please provide your most realistic framework for equity = 0?

I don't have my detailed model in front of me and am not an expert on the company (so I welcome any insight you have).   A couple months ago I simply took current cash flows, by project, and assumed that 50% of project-level EBITDA would be cut at expiry/renewal.   I then compared the total cash flow stream under that scenario to the debt maturity repayment schedule, and the debt was > sum of all cash flows under that period.

Maybe 50% is too draconian, but I am not an expert in commodity prices (I don't think anyone is).   Also, perhaps assuming no terminal value for the hydro plants (assuming a sale occurs when it becomes obvious they cannot repay debts) is too draconian.   

I follow it closely because I do think management is solid and is doing everything a rational shareholder would do.   I  would just likely pay a higher price and accept less upside/less risk once some of these renewals actually come to fruition.

If you look at my original valuation, subract what you will for renewals, add 17m recently reported interest savings, add 27m oefc payment, add current discretionary cash plus fcf from now until 2023 and I think you will find equity zero is not the case. Additionally, piedmont can be sold for greater than 50m. Also, refinancing over time as debt metrics are reduced significantly, wouldn't be an issue.

I just went through the annual letter and it convinced me to take a harder look at this.   I'll take a look at your model again.   Thanks for the reply.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on May 05, 2017, 06:08:28 AM
https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2467868&symbol=ATP&region=C

Steady results and nice settlement for previous years.

I continue to admire these guys: working diligently on renewing PPA's, looking at all options for Piedmont, allocating capital to the highest return, continually looking to lower costs (maintenance, quick payoff projects, interest rate). And now they have a substantial amount of cash on hand to be patient and use their skill. I wish that all management teams were like that!

Also nice to hear that Curtis Palmer upstream lake is full which has hurt their results last year due to low water flows.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: awindenberger on May 05, 2017, 11:43:00 AM
https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2467868&symbol=ATP&region=C

Steady results and nice settlement for previous years.

I continue to admire these guys: working diligently on renewing PPA's, looking at all options for Piedmont, allocating capital to the highest return, continually looking to lower costs (maintenance, quick payoff projects, interest rate). And now they have a substantial amount of cash on hand to be patient and use their skill. I wish that all management teams were like that!

Also nice to hear that Curtis Palmer upstream lake is full which has hurt their results last year due to low water flows.

Cardboard

I completely agree. This management team is spectacular.
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on May 05, 2017, 01:10:07 PM
Here is the transcript of Q1 CC:

https://seekingalpha.com/article/4069708-atlantic-power-corps-ceo-james-moore-q1-2017-results-earnings-call-transcript

http://investors.atlanticpower.com/download/Q1+2017+Earnings+Call+Presentation.pdf

http://investors.atlanticpower.com/download/AT+Q1+2017+Prepared+Remarks+Final.pdf

This management team is indeed unusual! They almost seem too good to be true. It makes you wonder what could they do if they ran a business that had excellent prospects like MA & V!

Here are some quotes from the recent annual report:

Today the shares of U.S. IPPs trade near historic lows. Atlantic Power stock (NYSE) hit an all-time low in December 2015, but traded up 27% in 2016 while the shares of the three largest U.S. IPPs traded up 6%, down 21% and down 37%. Relative performance in a terrible market is cold comfort to owners. The stock closed at $2.71 the day before I joined the Company (in January 2015), so I have nothing to brag about. After two years of intense restructuring, painful cost-cutting, and substantial delevering, the result is a lower share price.

They might be disappointed due to the poor sector economics of the moment being more prolonged than anticipated (recall the old Buffett saying that when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact). They also might be disappointed because management is not brilliant.

In addition to the share repurchases made by the Company, since joining Atlantic Power two years ago I have made a personal investment in the Company by buying 350,000 shares at an average price of $2.47 per share. As a group, management and directors have bought a total of nearly 1.5 million shares at an average price of $2.32 and a high price of $3.24.  The Company recently modified its share ownership policy to increase ownership requirements of directors and officers and extended its application to include non-officer managers at the senior vice president level.

We can’t be certain we will make the right calls all the time, but you can be certain that we constantly ask ourselves, ‘‘What would we do if we had 100% of our families’ net worth invested in this business?’’

At some point our shares might trade above intrinsic value. We have noted that we are a buyer at current prices, as they are below our estimates of intrinsic value. If our shares were trading at a premium to our estimates, we would stop buying them and reallocate the cash to debt reduction and growth initiatives. That share price might not fully value the upside cases discussed in this paragraph, but they might be sufficiently valued relative to market conditions such that we would consider risk reduction via debt repurchases as a better use of capital. The point is that we are focused on intrinsic value per share. At the price range in which the shares have traded since I joined the Company two years ago, we have viewed them as undervalued, but at another price we would cease repurchase and allocate capital to other uses, and at a still higher price we would issue shares to support growth or to further strengthen the balance sheet. Whether we are a buyer or a seller of assets or securities is dependent on formulating our best estimates of intrinsic value and taking a disciplined approach on price-to-value.

THIS GUY GETS IT!!!!!
Title: Re: AT - Atlantic Power Corp
Post by: flesh on May 05, 2017, 04:02:45 PM
I agree, if it wasn't for management, I wouldn't be in this, probably a first for me. I remain cautious until I see some surprises. Based on various valuation scenarios it seems to me that there is little downside, however unless management can invest more incrementally in the future at teens plus irr's, I don't think this thing moves much. Due to the leveraged nature however, it wouldn't take a lot of incremental high roi investment to cause significant appreciation. It seems the market has this one valued correctly atm. However upside downside is still at least 4 to 1, probably a bit better. If mgmt can catch a break in the next few years things could change quickly.

I find it interesting to think of a scenario where the equity goes to 1/share and a substantial issuer bid is placed. Absent new opportunities at attractive irr's, this would be a best case scenario. A mgmt who thinks long term may see something like this as a possibility, this may be why they didn't buy back shares this qtr. Because this is now a capital allocation thesis, the timeline moves out, they need to have the firepower to make the required moves, the obvious moves, plus have extra cash on hand to take advantage of any fortuitous opportunities. Exactly how I think about my future.

Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on May 24, 2017, 10:24:18 PM
Management bought more stock in the last week.

https://www.canadianinsider.com/company?menu_tickersearch=ATP%20%7C%20Atlantic%20Power
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on June 02, 2017, 02:27:15 PM
There has been a good amount of insider buying in this stock over the past 2 weeks, by not just from the CEO, but also from board members and company executives (CFO & EVP for commercial development).

From May 19 to June 1, i see a total of 122,917 shs bot in the open market at roughly $2.35 to 2.40.

The stock shot up today 6% and volume has been quite large the past few days.





Title: Re: AT - Atlantic Power Corp
Post by: awindenberger on June 15, 2017, 04:48:16 AM
Is anyone planning to go to the AT annual meeting on June 20th? I was hoping to go but can't make it. In case anyone is I'd love to ask management a question or two through you.
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on June 25, 2017, 12:33:09 PM
The stock got crushed on Friday, i'm thinking mostly due to the Russell re-balance event. At the close, over a million shares traded and just got dumped...

The company posted the AGM audio replay on the website.

https://s3.amazonaws.com/filecache.drivetheweb.com/mr5ir_atlanticpower/214/2017+AGM+Presentation+FINAL.pdf

http://investors.atlanticpower.com/annual-meeting

The CEO said one of his favorite investors is Mason Hawkins. Maybe we should call Mason and have him buy it for his small cap fund!

Was anyone able to go to the meeting? Cardboard, any thoughts lately on this name?

Thank you.
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on June 25, 2017, 12:47:40 PM
The stock got crushed on Friday, i'm thinking mostly due to the Russell re-balance event. At the close, over a million shares traded and just got dumped...

The company posted the AGM audio replay on the website.

https://s3.amazonaws.com/filecache.drivetheweb.com/mr5ir_atlanticpower/214/2017+AGM+Presentation+FINAL.pdf

http://investors.atlanticpower.com/annual-meeting

The CEO said one of his favorite investors is Mason Hawkins. Maybe we should call Mason and have him buy it for his small cap fund!

Was anyone able to go to the meeting? Cardboard, any thoughts lately on this name?

Thank you.

I caught the tail end of the meeting because Polaris Infrastructure (PIF.TO) had its meeting at the same time.

The CEO continues to impress me with how thoughtful he is about where incremental capital should be invested but they continue to deal with difficult market conditions. I didn't hear anything to justify the sell off.

As an aside, if you haven't looked at Polaris before, it offers compelling value and growth but is a one asset company based in Nicaragua but has aspirations to grow in Central/South America via acquisition.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on June 27, 2017, 02:48:39 PM
Bought some more this afternoon.

I continue to really like the management team and since they have been quiet for a while now, I am thinking that positive surprises are on the horizon:

1- The cash received in Q2 from the Ontario settlement is not insignificant.
2- Piedmont is being looked at with options of a sale, debt reduction/refinancing.
3- They were in phase 2 negotiation with Navy in San Diego.
4- They were looking for new contracts with industrial customers.
5- Contrarily to last year, water flows and power generation should be much better at their hydro dams.

So it seems to be a case of the market getting impatient or losing interest. It would not take much to reverse that and with good capital allocators at the helm we could end up pleasantly surprised at any moment.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on June 27, 2017, 10:20:15 PM
Thanks Cardboard...During the AGM, CFO provided good guidance for 2017,2018 and 2019


Year    EBITDA    OH    CF   Debt        EX Cash    Debt/CF

2017   250            23    225    847        56             3.75
2018   190            23    165    747        61             4.50
2019   190            23    165    652        99             3.95

2020   Flat                            536        102            3.25
2021   Flat                            444        135            2.70
2022   Flat                            356        177            2.15
2023   Flat                            217        173           

Does not include sale of Piedmont which has a $54 balloon next August.  My guess is that they probably take some of their cash to pay the balance down to $40 then refinance to bring the cost of debt down from 8.5% to 5.0%

Sale would take debt down to approx $600, cash will be over $100 million and leverage ration exiting 2019 will be close to 3.5X

From 2020 I used the required scheduled payments on their credit facility and assumed flat cash flow till the next wave of PPA exp.  As you can see cash still builds so the question is can Moore create value by either improving efficiency with internal capex projects, buying debt, preferreds or common at a discount over the next 5 years.

Got to be an easy double by then??? 15% annual return with a high degree of certainty??
Title: Re: AT - Atlantic Power Corp
Post by: awindenberger on June 28, 2017, 07:47:31 AM
Thanks Cardboard...During the AGM, CFO provided good guidance for 2017,2018 and 2019


Year    EBITDA    OH    CF   Debt        EX Cash    Debt/CF

2017   250            23    225    847        56             3.75
2018   190            23    165    747        61             4.50
2019   190            23    165    652        99             3.95

2020   Flat                            536        102            3.25
2021   Flat                            444        135            2.70
2022   Flat                            356        177            2.15
2023   Flat                            217        173           

Does not include sale of Piedmont which has a $54 balloon next August.  My guess is that they probably take some of their cash to pay the balance down to $40 then refinance to bring the cost of debt down from 8.5% to 5.0%

Sale would take debt down to approx $600, cash will be over $100 million and leverage ration exiting 2019 will be close to 3.5X

From 2020 I used the required scheduled payments on their credit facility and assumed flat cash flow till the next wave of PPA exp.  As you can see cash still builds so the question is can Moore create value by either improving efficiency with internal capex projects, buying debt, preferreds or common at a discount over the next 5 years.

Got to be an easy double by then??? 15% annual return with a high degree of certainty??

Thanks for the details. When did the CFO give these estimates? I don't remember hearing it on the recordings and didnt see a slide either.
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on June 28, 2017, 12:25:52 PM
hi awindenberger, sorry, the CFO did not give those out. for 2017-2019, its reverse math, and from 2020-2022, its an assumption since the PPAs go out till then.

Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on July 05, 2017, 06:22:51 AM
Is there any reason not to buy the less liquid OTC preferreds (APRWF or APRRF) rather than the TSX listed?   Aside from illiquidity

Edit:  these are even more illiquid than I thought.  Fidelity kills me on fees for international trading (TSX) though ($19 per trade and ~.9% premium on market CAD:USD)
Title: Re: AT - Atlantic Power Corp
Post by: winjitsu on July 11, 2017, 01:34:11 AM
https://www.wsj.com/articles/how-energy-rich-australia-exported-its-way-into-an-energy-crisis-1499700859

Foreshadowing what's to come once the US starts exporting more gas?

that or just confirmation bias ;)
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on August 03, 2017, 04:04:20 PM
https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2492209&symbol=ATP&region=C

"In July 2017, the Company repurchased and cancelled 171,612 shares of the 4.85% Cumulative Redeemable Preferred (Series I issue) at Cdn$15.5 per share for a total payment of Cdn$2.7 million."

These are the "A"'s. Makes a ton of sense to buyback a security yielding 7.8%.

I am kind of looking for something bigger from these guys with liquidity that keeps on improving.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: flesh on August 04, 2017, 08:04:33 AM
I'm out of this, I didn't make/lose anything here. Basically, if ppa's renew at 1/3 (mgmt's expectation and evident since they made this clear) current ebitda (those that will renew), it becomes a more acute capital allocation situation.

While I still believe downside is probably capped, I'm finding better upside cases elsewhere. Hopefully I'm wrong and everyone does well here.

I'll monitor this one for changes in ppa renewal expectations/changes and share price changes.

I like that they spent a couple m on the a's at 11% roi's inclusive of tax savings.



Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on August 04, 2017, 11:17:22 AM
Cardboard,

I agree we need something more. Why not just pay down $40 mill or so of debt right now rather than talking about doing it by year end. This alone would save close to $1 mill in interest expense. The settlement they got should almost be treated as "found money" so spend it now to reduce debt since that is what he keeps talking about!
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on August 04, 2017, 02:09:48 PM
I'm out of this, I didn't make/lose anything here. Basically, if ppa's renew at 1/3 (mgmt's expectation and evident since they made this clear) current ebitda (those that will renew), it becomes a more acute capital allocation situation.

While I still believe downside is probably capped, I'm finding better upside cases elsewhere. Hopefully I'm wrong and everyone does well here.

I'll monitor this one for changes in ppa renewal expectations/changes and share price changes.

I like that they spent a couple m on the a's at 11% roi's inclusive of tax savings.

What caused such a drastic change in your sentiment?  At one point you held a 20% position and another point 10%?  Seems management has continued to execute exactly according to expectations.  I still think the commons are a risky (but asymmetrical) bet, but the preferreds seems to have little chance of permerant loss of capital, yield in 7-8%, and have 40-60% appreciation likely over next 4/5 years.  Where are you beating this to sell a 10% position, or what changed?
Title: Re: AT - Atlantic Power Corp
Post by: flesh on August 04, 2017, 03:13:31 PM
Good and fair questions. Simply put, when I run the numbers, excluding the ppa's that will likely expire worthless and the rest at 1/3 current run rate, it leaves too small a margin of error. Mgmt is awesome, however, I don't like relying on things that qualitative, I don't believe I know enough, it's not a small hurdle. It's not hard to make a case for a reasonable return from here. Until proven otherwise, I'll continue to be unreasonable.  That combined with the fact that I tend to concentrate in my best ideas especially in a market where there are few (top three are 60% of portfolio), there isn't  room for AT.

If it was true that AT could renew at 50% current run rates, it would be a 20% position. I didn't know, I believed I was being conservative planning on 50% of current run rates for renewals, mgmt informed me I was wrong, some good things happened which caused me to slowly vs quickly  change my mind. Also, another company I've been following for a few years and owned in the past, came down to my buy threshold.

Being intellectually honest here, that's all, warts and all. If anyone has a pill that will cause you too know when you've done 100% of the work before you invest a penny, I'm a buyer.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on August 04, 2017, 04:21:37 PM
They renewed San Diego at over 1/3 which was a tough situation communicated in advance. So this is a +.

On the call today they talked about some M&A rumors and they mentioned in their material that they would not entertain selling their hydro assets at even 14 times EBITDA or a value of $616 million. How do you replicate an hydro dam on the Hudson River? What is it? Only solar and wind are cool now?

Piedmont was also a troubled project and is now generating $9.5 million in EBITDA and trending towards $10.

In terms of forecast, they are calling for $550 to $600 million in cash flow over the next 5 years starting in 2018. So you have solid cash flows, solid asset values and liquidity climbing on a very cheap valuation with a management team that has never did something dumb.

Cardboard

Title: Re: AT - Atlantic Power Corp
Post by: awindenberger on August 05, 2017, 06:23:41 PM
They renewed San Diego at over 1/3 which was a tough situation communicated in advance. So this is a +.

On the call today they talked about some M&A rumors and they mentioned in their material that they would not entertain selling their hydro assets at even 14 times EBITDA or a value of $616 million. How do you replicate an hydro dam on the Hudson River? What is it? Only solar and wind are cool now?

Piedmont was also a troubled project and is now generating $9.5 million in EBITDA and trending towards $10.

In terms of forecast, they are calling for $550 to $600 million in cash flow over the next 5 years starting in 2018. So you have solid cash flows, solid asset values and liquidity climbing on a very cheap valuation with a management team that has never did something dumb.

Cardboard

I'm with Cardboard. They had communicated how challenging the San Diego renewals would be, so really any EBITDA is a positive in my book there. I'm slowly but surely taking a bigger position in AT. The space has been pummeled and you have a management team that is as top-notch as any I've seen. They've been making lemonade out of lemons for multiple years now and I believe with a couple more years of debt reduction the market is suddenly going to wake up and rerate the stock.
Title: Re: AT - Atlantic Power Corp
Post by: mrholty on August 11, 2017, 03:50:51 PM


On the call today they talked about some M&A rumors and they mentioned in their material that they would not entertain selling their hydro assets at even 14 times EBITDA or a value of $616 million. How do you replicate an hydro dam on the Hudson River? What is it? Only solar and wind are cool now?

Not related to AT but a few years back I started looking into the idea of buying some old hydro plants and getting them working etc.  Ran into a whole cool culture and I found out I was about 5-10 years to late.  Met a guy who bought 30 units in Wisconsin where I am from buying them for $1 to 2x EBIT.  Created a portfolio and sold the majority of it to a buyer at 8x.  Deals were going for 10-15x. 

Strange thing is that for the small hydro dams there are now environmentalists who think they are more damaging than if there were not there.
Title: Re: AT - Atlantic Power Corp
Post by: flesh on August 11, 2017, 06:01:44 PM
Allowing for hydro being valued at 616m, ppa's renewing at 1/3, adjusting my model for greater than anticipated cash flow from recent naval ppa's, at todays prices.... I'm getting around a 10% cagr, next ten years. Not bad. If I'm right, aside from some preferred's at current prices and perhaps some internal plant investments, they should be putting more cash into buybacks as it's the best bang for the buck. If they aren't buying back, to some degree considering their cash pile in context of current debt requirements, it gives me pause. They may be waiting until the coast is clear on next two year ppa's or I may be missing something of course.

Under various circumstances, this could get really interesting.
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on August 12, 2017, 08:20:13 AM
Allowing for hydro being valued at 616m, ppa's renewing at 1/3, adjusting my model for greater than anticipated cash flow from recent naval ppa's, at todays prices.... I'm getting around a 10% cagr, next ten years. Not bad. If I'm right, aside from some preferred's at current prices and perhaps some internal plant investments, they should be putting more cash into buybacks as it's the best bang for the buck. If they aren't buying back, to some degree considering their cash pile in context of current debt requirements, it gives me pause. They may be waiting until the coast is clear on next two year ppa's or I may be missing something of course.

Under various circumstances, this could get really interesting.

My guess is they feel the commons are undervalued (they've said multiple times, have bought back sizable amounts, have made open market purchases themselves), but there is value in taking out required reductions in free cash flow (preferred dividends being one) given the low margin of error you described in one of your earlier posts.   

The preferred purchase was relatively small and still adds to intrinsic value.  Maybe not as much as the commons likely would, but it adds to intrinsic value in a less risky way by reducing pref dividend payments which they probably want to avoid having to pause on.   

Overall, wouldn't read too much into it.   Moore seems to be continually making solid decisions, I doubt he did this without considering value in the same way we consider value.   
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on August 29, 2017, 06:28:45 AM
https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2499655&symbol=ATP&region=C

I consider this bad news. While I agree that the impact on the company is not significant, they seem to sugarcoat it which I don`t like.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: petec on August 29, 2017, 06:44:43 AM
https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2499655&symbol=ATP&region=C

I consider this bad news. While I agree that the impact on the company is not significant, they seem to sugarcoat it which I don`t like.

Cardboard

I don't read their comments as sugar-coating - they say they are disappointed.   What intrigues me is the implication that they have a lot of investment opportunities.
Title: Re: AT - Atlantic Power Corp
Post by: StubbleJumper on August 29, 2017, 07:30:45 AM
https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aATP-2499655&symbol=ATP&region=C

I consider this bad news. While I agree that the impact on the company is not significant, they seem to sugarcoat it which I don`t like.

Cardboard

I don't read their comments as sugar-coating - they say they are disappointed.   What intrigues me is the implication that they have a lot of investment opportunities.


I agree - I didn't see much that I interpreted as sugar coating.  They have telegraphed the possibility of this situation for quite some time, and it was a key element of the recent contingent PPA that they signed.  IMO, they've done a good job in the past to describe and manage this risk, and today's announcement has done a good job of describing the impact (ie, ignoring discounting, ~$42m of ebitda - $22m of incremental capex = ~$20m hit to enterprise value).  There will be all of the silly accounting charges, but at least we understand the rough cash flow impact.

The reference to investment opportunities likely alludes to debt repayment or the repurchase of prefs and common.  After this accounting charge hits the quarterly, maybe the common will fall enough to make an even more attractive re-purchase opportunity.


SJ
Title: Re: AT - Atlantic Power Corp
Post by: gokou3 on August 29, 2017, 09:35:49 AM
The pretax unlevered IRR for the $22M capex giving $6M EBITDA over 7 years is 19%.  Quite high comparing to an alternative say buying back AZP.PR.A which they have been doing and is currently yielding 7.7%.
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on September 06, 2017, 09:39:54 AM
Interesting to see some recent insider open market purchases of B series preferreds, particularly after they've run up so nicely.

Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on September 07, 2017, 05:22:32 AM
Same director bought significantly more of the C class last week and filed last night.

https://www.canadianinsider.com/company?ticker=ATP

Makes a lot of sense as they are interconvertible and the 90-day t-bill rate is increasing the current yield on the C's making total return significantly higher to reset than the Bs.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on September 07, 2017, 05:33:46 AM
I will hold on to my "A"'s since they yield more, have a greater discount to par, the company has bought back some and I suspect that the fact that this director is buying the "B"'s and "C"'s may be an indication that the company intends to buy more "A"'s or to avoid conflict of interest/insider trading.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: petec on September 07, 2017, 06:10:01 AM
The pretax unlevered IRR for the $22M capex giving $6M EBITDA over 7 years is 19%.  Quite high comparing to an alternative say buying back AZP.PR.A which they have been doing and is currently yielding 7.7%.

I'd missed them buying back the pref.   Do you have a link?
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on September 07, 2017, 07:00:00 AM
Read the Q2.
Title: Re: AT - Atlantic Power Corp
Post by: petec on September 07, 2017, 07:24:27 AM
Thanks.   It's on my pile!
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on September 07, 2017, 07:59:36 AM
I will hold on to my "A"'s since they yield more, have a greater discount to par, the company has bought back some and I suspect that the fact that this director is buying the "B"'s and "C"'s may be an indication that the company intends to buy more "A"'s or to avoid conflict of interest/insider trading.

Cardboard

The A's don't actually yield more on a total return basis all being equal. If you add the capital gains to the C's assuming they converge with the Bs on maturity in 2019, they yield almost 2% above the As.

The big assumption of course is that the Bs are flat in that analysis.
Title: Re: AT - Atlantic Power Corp
Post by: mike on January 06, 2018, 06:52:39 PM
Jus read Q3 slides and prepared remarks.

"2017 has been a strong year for both Project Adjusted EBITDA and operating cash flow. However, 2018 EBITDA is likely to be significantly lower."
"In total this represents an approximate $100 million reduction to Project Adjusted EBITDA in 2018 relative to 2017. Note that this figure represents the impact only of expiring PPAs. "

2017's Project Adjusted EBITDA is aboout 270M. This means 170M for 2018. The consolidated debt is 872M, Pro Forma for Piedmont Debt Repayment.
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on January 06, 2018, 08:07:52 PM
So?

Come on express yourself!

Carboard
Title: Re: AT - Atlantic Power Corp
Post by: Sunrider on January 09, 2018, 02:57:29 AM
So?

Come on express yourself!

Carboard

... in other words - what’s your point, Mike? I think Cardboard is saying that this has been known given San Diego, etc.
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on January 12, 2018, 07:54:25 AM
Schedule D out includes the following language:

Purpose of Transaction.
Item 4 is hereby amended to add the following:

The Reporting Persons have had discussions with the President and Chief Executive Officer of the Issuer regarding alternative uses for the Issuer’s power plants that have expired or expiring power purchase agreements. On January 10, 2018, the Reporting Persons had a telephonic meeting with the President and Chief Executive Officer of the Issuer to discuss plans to develop and supply power to collocated data centers as well as to explore utilizing surplus power for cryptocurrency mining and other blockchain applications. The Reporting Persons also expressed interest in providing co-investment capital for such projects. These discussions are continuing.


I have to admit - I'm very excited to see Cardboard's reaction to this
Title: Re: AT - Atlantic Power Corp
Post by: StubbleJumper on January 12, 2018, 08:41:49 AM
Schedule D out includes the following language:

Purpose of Transaction.
Item 4 is hereby amended to add the following:

The Reporting Persons have had discussions with the President and Chief Executive Officer of the Issuer regarding alternative uses for the Issuer’s power plants that have expired or expiring power purchase agreements. On January 10, 2018, the Reporting Persons had a telephonic meeting with the President and Chief Executive Officer of the Issuer to discuss plans to develop and supply power to collocated data centers as well as to explore utilizing surplus power for cryptocurrency mining and other blockchain applications. The Reporting Persons also expressed interest in providing co-investment capital for such projects. These discussions are continuing.


I have to admit - I'm very excited to see Cardboard's reaction to this


That's hilarious!  They are converting their public image from a stodgy power generating company to a leading edge crypto currency company!  Can we insert the words "Block chain" into the company name?!!?  I like the ring of it, "Atlantic Block Chain and Power Company".

This thing is headed for the stratosphere!


SJ
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on January 12, 2018, 08:53:58 AM

For those not following AT closely:  Management has indicated over the past few quarters that they view industrial users as a growth opportunity because of the disconnect between wholesale power prices and those at the end of the line (i.e. supplying certain industrial users directly rather than supplying power to the grid). It hasn't ever been mentioned specifically, but I have wondered whether data centres would be a viable industrial partner.

I don't think you have to worry much about these guys indiscriminately chasing blockchain riches.  They appear to be about as rational as they come.  I suggest reading managements "prepared remarks" from last quarter.  I continue to be impressed by this team..
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on January 12, 2018, 09:36:26 AM
It is Mangrove proposing this option and not the company or a fund that has held AT shares for a few years now and likely fed up with the lack of share price appreciation.

If their power plants are used by blockchain mining so be it. It would be another industrial user to add to their clients list. The Chinese are apparently cracking down on bitcoin mining since it consumes a lot of power and they consider it not a key goal unlike AI, robots and EV.

If I recall properly from a recent article, the worldwide consumption is already at 0.17% which in my view is enormous for an activity that creates nothing. In other words, if the solving of these complex math equations was helping to solve some of the world's problems in parallel then, it could amount to something. That is not the case.

Even gold mining is useful to a degree as it is essential in many applications. So the capital and energy spent on mining gold is not entirely devoted to creating a store of value.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on January 12, 2018, 11:04:25 AM
Atlantic power released the following this afternoon:

Atlantic Power Corporation (NYSE: AT) (TSX: ATP) ("Atlantic Power" or the "Company") today released the following statement in response to news inquiries about an amended Schedule 13D filed earlier today by the Company's largest shareholder, Mangrove Partners and certain affiliated entities (collectively, "Mangrove"):

On January 10, 2018, management of Atlantic Power had a conference call with Mangrove, at Mangrove's request. During the call, Mangrove recommended that the Company explore commercial opportunities for those power plants that are currently not operational, those that have Power Purchase Agreements ("PPAs") scheduled to expire in the next few years, and those that may have excess power available for sale. The Company has had an active commercial effort with respect to these plants for some time, including pursuing potential alternative uses for existing sites and commercial arrangements with existing or new customers. The Company welcomed Mangrove's input and their interest in potential co-investment with the Company. During the call, Mangrove mentioned several types of businesses as potential areas of new customer demand. One area mentioned was cryptocurrency mining and related businesses. Although the Company may evaluate that sector, as it would other potential businesses, there are no ongoing discussions with cryptocurrency miners or related businesses or with Mangrove related to that sector. The Company would take a cautious view of counterparty credit risk for any such businesses.
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on January 23, 2018, 04:00:24 AM
I’m curious on people’s thoughts on the new convertible announcement. It seems like a reasonable risk adjusted way to get exposure to the management team versus buying the common outright.

Also, there has been a debate on the preferred here in the past and I wanted to point out that the current yield on the AZP.PR.C slightly exceeds the AZP.PR.B. The total yield is significantly higher all else being equal as the AZP.PR.B and AZP.PR.C are inter convertible in than 2 years. I have seen other floaters begin trading at a premium to their fixed rate counterparts as their current yields have risen above but this one has lagged.
Title: Re: AT - Atlantic Power Corp
Post by: spartansaver on January 24, 2018, 07:18:26 PM
When the company discloses project adjusted EBITDA on an equity method, I'm assuming this means that the EBITDA amount is ATP's proportionate amount of EBITDA (ex. ATP owns 50.15% of Frederickson and presents 2016 proj. adj. EBITDA of $12.1mm. This implies that actual EBITDA of the plant was $24.1mm). Is this correct?
Title: Re: AT - Atlantic Power Corp
Post by: petec on January 25, 2018, 12:33:29 AM
When the company discloses project adjusted EBITDA on an equity method, I'm assuming this means that the EBITDA amount is ATP's proportionate amount of EBITDA (ex. ATP owns 50.15% of Frederickson and presents 2016 proj. adj. EBITDA of $12.1mm. This implies that actual EBITDA of the plant was $24.1mm). Is this correct?

Where they specify that it is a proportionate number, that's how I read it, yes.
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on January 30, 2018, 10:24:37 AM
Does anyone have any insight into the steady (and continuing) decline since around beginning of December?

My guesses:

- The recent $100mm convertible issue putting a lid on the equity upside.  I was surprised at the size of the offering and the conversion price of $4.20 was lower than I'd expect, given management's belief earlier this year that the equity was undervalued even in the $3.50 range.

- The San Diego naval assets were supposed to end operation in February 2018, if no progress was made on alternative arrangements.  Unclear to me if the termination was at the beginning or end of February, but lack of news on this front suggests those assets are indeed destined to be decommissioned.

Any other thoughts?

Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on January 30, 2018, 11:23:41 AM
You piss publicly on your largest shareholder who is trying to bring up some new ideas, find new customers, while you find none. Then you upsize an already large convertible issue with capped upside at $4.20 while your mission is supposedly to reduce debt and deliver shareholder value. This issue attracts a bunch of short sellers who are trying to hedge their new convertible position and voila!

Cardboard 
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on January 30, 2018, 11:43:56 AM
You piss publicly on your largest shareholder who is trying to bring up some new ideas, find new customers, while you find none. Then you upsize an already large convertible issue with capped upside at $4.20 while your mission is supposedly to reduce debt and deliver shareholder value. This issue attracts a bunch of short sellers who are trying to hedge their new convertible position and voila!

Cardboard

Interesting, thanks for your take.  For what it's worth, I didn't read their response to Mangrove as a public flogging.  The shares spiked on crypto hype and my guess is that the legal team felt compelled to issue a statement.  Here's what they said:

"The Company welcomed Mangrove's input and their interest in potential co-investment with the Company.  During the call, Mangrove mentioned several types of businesses as potential areas of new customer demand.  One area mentioned was cryptocurrency mining and related businesses.   Although the Company may evaluate that sector, as it would other potential businesses, there are no ongoing discussions with cryptocurrency miners or related businesses or with Mangrove related to that sector.  The Company would take a cautious view of counterparty credit risk for any such businesses."

This seems generally open to Mangrove's input.  They're just confirming that they are not jumping into the crypto craziness with both feet.   I'm unclear on the legal requirements, but I assumed this was equivalent to the common "company X is not aware of any material news that would cause the recent trading activity" release.

Good point about hedging the convertible.
Title: Re: AT - Atlantic Power Corp
Post by: mike on March 03, 2018, 06:22:18 PM
Just listened to the call and read the remarks. As good as usual.

Debt: Will pay back approx. $100m per year and be debt free by 2025.
Stock Repurchase: "More than happy" to buy back 10% this year, approx. $25m. Didn't buy back any yet due to blackout.
Investment in business: Low hanging fruits are gone. Don't expect much in the future.
M&A: Actively looking for bargains. Everything is on the table and they specially mentioned wind and biomass. They spent quite some time talking about M&A in the call.
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on March 04, 2018, 12:57:45 PM
Just listened to the call and read the remarks. As good as usual.

Debt: Will pay back approx. $100m per year and be debt free by 2025.
Stock Repurchase: "More than happy" to buy back 10% this year, approx. $25m. Didn't buy back any yet due to blackout.
Investment in business: Low hanging fruits are gone. Don't expect much in the future.
M&A: Actively looking for bargains. Everything is on the table and they specially mentioned wind and biomass. They spent quite some time talking about M&A in the call.

Nobody could accuse these guys of being promotional, that's for sure!  I really like listening to the calls.  Very clear, thoughtful responses to questions.

I was a bit put off by the $4.20 convertible issuance.  But it's clear upon listening to the call how keen they have been to set up a strong enough defensive position to allow them to go on offence if/when the right prices come along over the next few years.  The balance sheet strength that comes with pushing out those maturities was worth the price.

It was also interesting to hear them address the different uses of capital, with regards to dividends (not a good idea), NCIB, SIB.

I doubled my position around C$2.40. 
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on March 04, 2018, 01:18:31 PM
I lightened up a little in the pop above $2.80.

All talk, no action as Mr. Trump says about politicians. They have done well on the financial engineering side but, nothing on the execution: no new customer, not much operational improvement. In 2017, they basically lost San Diego, got free money from Ontario and Curtis Palmer saw higher water flows because of more snow/water falling upstream of the dam...

So the talk about Ben Graham is nice but, I need to see more. For example, the preferreds have been really cheap for a long time, especially the "A"'s, they cost a fair bit of money each year and very little is being repurchased. The recent blackout is a lame excuse.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: gokou3 on March 04, 2018, 01:49:03 PM
I lightened up a little in the pop above $2.80.

All talk, no action as Mr. Trump says about politicians. They have done well on the financial engineering side but, nothing on the execution: no new customer, not much operational improvement. In 2017, they basically lost San Diego, got free money from Ontario and Curtis Palmer saw higher water flows because of more snow/water falling upstream of the dam...

So the talk about Ben Graham is nice but, I need to see more. For example, the preferreds have been really cheap for a long time, especially the "A"'s, they cost a fair bit of money each year and very little is being repurchased. The recent blackout is a lame excuse.

Cardboard

This is exactly how I felt too.  I exited my common a few months ago and last week sold my Series 1 preferred shares as well (both around breakeven).  They basically have to wait for the cycle to turn (i.e. power prices going up) and who knows how long that takes.  Renewable power development are still robust so that should pressure prices regardless that they only produce intermittently.  Maybe management can pull this through but with many stocks now heading down, I will keep my capital in cash and wait for better opportunities elsewhere.
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on March 04, 2018, 01:56:04 PM
Here's how I'm thinking about it by extending the time horizon to year 2025 and assuming worst case scenario:
That gives the following:
+ $70mm from Piedmont and Koma runoff
+ $416mm from selling all other assets at 2x EBITDA
+ ($49mm) capitalized sg&a and capex
- $178mm in preferreds
= ~$260mm in equity value in 2025 vs current market cap = $242mm.   

A terrible result - but I think permanent loss of capital is very unlikely at $2.10 a share.  And I think this scenario is absolute worst case and is unlikely to be reality.


I think the more probable base case scenario is AT having ~$50mm FCF in 2025, no debt.  Capitalized at a 13x post-tax FCF multiple and you're looking at $650mm in equity+pref value.   Less the $178mm in prefs and the equity is worth $472mm.   An 11.8% CAGR over 7 years vs today's 2.10 per share price.

The preferreds remain much more attractive in terms of a floor.   Highly unlikely they miss a pref payment simply modeling out cashflows through FY2025.   And so permanent loss of capital is virtually unlikely.   

Obviously the objective is great returns in addition to avoiding permanent loss of capital, but this can be viewed as a free call option at a certain price.  For the prefs, you're probably looking at an effective floor of 7-8% if you buy the variable series.   

A lot of this has to do with how extended the cycle is, but management has shown every indication that they are intelligently allocating capital.   Free option on the cycle changing before 7 years goes by.   



 
Title: Re: AT - Atlantic Power Corp
Post by: Cardboard on March 04, 2018, 03:44:50 PM
It is a good way to look at it. Risk is relatively low and return over time should be decent. Hydro assets should retain a very attractive multiple.

I was hoping for more action: asset sales, share buybacks, new customers, some success. So far disappointing and this convert at $4.20 CDN is not great for shareholders IMO.

Now, there is no way that I will sell my preferreds "A"'s. Discount to par is too large, tax advantaged large yield in Canada, they are buying some back providing price support and they should be well covered. Nice spread on borrowed money.

Cardboard
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 04, 2018, 04:08:38 PM
It is a good way to look at it. Risk is relatively low and return over time should be decent. Hydro assets should retain a very attractive multiple.

I was hoping for more action: asset sales, share buybacks, new customers, some success. So far disappointing and this convert at $4.20 CDN is not great for shareholders IMO.

Now, there is no way that I will sell my preferreds "A"'s. Discount to par is too large, tax advantaged large yield in Canada, they are buying some back providing price support and they should be well covered. Nice spread on borrowed money.

Cardboard

I like the AZP.PR.C based on the spread to the AZP.PR.B but I can see the attraction of the A’s.

I noticed recently that high quality floaters have moved to a premium to their fixed-reset counterparts. But “lower quality” ones like AZP.PR.C and DC.PR.D trade at discounts. For AZP.PR.C, Since the reset date is Dec 2019, the current YTM is almost 11% all else being equal.
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on March 04, 2018, 05:41:48 PM
I was hoping for more action: asset sales, share buybacks, new customers, some success. So far disappointing and this convert at $4.20 CDN is not great for shareholders IMO.

There were some negatives, no question.  I don't like the conversion price.  And I was hoping like everybody else that they'd see their way clear to keep site control of the San Diego assets.  (They may still, though very low probability now IMO.)

But I think they've been very transparent about the actions they're taking, or lack thereof, and I'm quite comfortable with them mostly sitting on their hands right now -- after a few years of some impressive balance sheet improvement.

Everything is on the table.  They've said for a few quarters that now that this is not time to sell their assets.  And they're now saying that things are getting a little more interesting in terms of acquisitions.  They put in a couple bids recently but haven't closed any deals.   

I like their discipline.  I'm pretty unsophisticated and can't honestly model the power market with any degree of confidence.  Like Snarky I view it as a  well-run, low risk option on what could turn out to be tremendous volatility in energy prices over the next decade.
Title: Re: AT - Atlantic Power Corp
Post by: petec on March 05, 2018, 01:08:26 AM
I noticed recently that high quality floaters have moved to a premium to their fixed-reset counterparts. But “lower quality” ones like AZP.PR.C and DC.PR.D trade at discounts. For AZP.PR.C, Since the reset date is Dec 2019, the current YTM is almost 11% all else being equal.

Do you mean the yield to conversion into the reset series?
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 05, 2018, 03:59:41 AM
I noticed recently that high quality floaters have moved to a premium to their fixed-reset counterparts. But “lower quality” ones like AZP.PR.C and DC.PR.D trade at discounts. For AZP.PR.C, Since the reset date is Dec 2019, the current YTM is almost 11% all else being equal.

Do you mean the yield to conversion into the reset series?

Yes exactly, the value of the AZP.PR.C and AZP.PR.B should converge into Dec 2019 and the current gap between the stocks adds a large capital gain to the return of AZP.PR.C if AZP.PR.B remains at the current level. At the very least, it’s a higher return than AZP.PR.B on a relative basis.
Title: Re: AT - Atlantic Power Corp
Post by: petec on March 05, 2018, 04:20:20 AM
I noticed recently that high quality floaters have moved to a premium to their fixed-reset counterparts. But “lower quality” ones like AZP.PR.C and DC.PR.D trade at discounts. For AZP.PR.C, Since the reset date is Dec 2019, the current YTM is almost 11% all else being equal.

Do you mean the yield to conversion into the reset series?

Yes exactly, the value of the AZP.PR.C and AZP.PR.B should converge into Dec 2019 and the current gap between the stocks adds a large capital gain to the return of AZP.PR.C if AZP.PR.B remains at the current level. At the very least, it’s a higher return than AZP.PR.B on a relative basis.

Yeah I misunderstood initially and thought you meant to maturity in the sense of in perpetuity (these being callable perps).

The only issue with your thinking is that valuation gaps can close two ways ;)
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on March 05, 2018, 09:13:55 PM
I noticed recently that high quality floaters have moved to a premium to their fixed-reset counterparts. But “lower quality” ones like AZP.PR.C and DC.PR.D trade at discounts. For AZP.PR.C, Since the reset date is Dec 2019, the current YTM is almost 11% all else being equal.

Do you mean the yield to conversion into the reset series?

Yes exactly, the value of the AZP.PR.C and AZP.PR.B should converge into Dec 2019 and the current gap between the stocks adds a large capital gain to the return of AZP.PR.C if AZP.PR.B remains at the current level. At the very least, it’s a higher return than AZP.PR.B on a relative basis.

Yeah I misunderstood initially and thought you meant to maturity in the sense of in perpetuity (these being callable perps).

The only issue with your thinking is that valuation gaps can close two ways ;)

Yeah for sure. It's definitely on a relative basis. If you own the Bs, switching to the Cs makes a lot of sense.
Title: Re: AT - Atlantic Power Corp
Post by: petec on March 06, 2018, 01:00:23 AM
If you own the Bs, switching to the Cs makes a lot of sense.

In theory it does. Sadly given how illiquid the prefs are and the bid/ask spreads, I suspect you'd find the real advantage wasn't so great.

I'd actually be quite intrigued by the converts here if I could find a platform that would let me buy them. Get paid 6.2% to wait and see if something nice happens to the equity. Main disadvantage vs. the prefs is if rates rise much more.
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on March 06, 2018, 10:30:20 AM
My base case at 2025 is 70 million Editda annually based on existing PPA. 10 times gives you EV if $700 less preferred of 170 leaving common with 530 mil. Say $500 = $4.20 per share.

This is a 95 percent return in 7 years. Say 10 percent annualized.

Now, over the next 7 years do you think mgt will not do anything positive and All PPAS expiring will not be renewed?  Not even for nominal amounts?  Also this power markets continue to be at cyclical lows?

In this base case remember after 2023 there will be no debt to amortize. Remaining debt will be due 2025 (95 mil). They will also have $160 million in cash with the 2036 notes of $160.  Why pay it off at that point?  I would buy back stock. So imagine buying back 75 percent of the float if the stock price is the same!  From 2025 to 2036 you get $50 FCF (assuming no value added by mgt) on 25 million shares. $2 per share in dividend.
Title: Re: AT - Atlantic Power Corp
Post by: petec on March 06, 2018, 02:36:25 PM
My base case at 2025 is 70 million Editda annually based on existing PPA.

Do you mind sharing the breakdown of this? And how long do those PPAs last from 2025 onwards?
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on March 06, 2018, 04:53:45 PM
My base case at 2025 is 70 million Editda annually based on existing PPA.

Do you mind sharing the breakdown of this? And how long do those PPAs last from 2025 onwards?

$70mm is simply the remaining EBITDA for FY2025 if you model off each PPA until expiration.   The reality is that, contractually, this number drops to $19mm in FY2028.   

But as I pointed out above, you can easily identify $400mm+ of cash value from selling these assets after they expire instead of renegotiating new PPA's (assuming sales at 2x EBITDA which seems highly conservative).   

It seems obvious to me that the current equity value can be salvaged simply through intelligent capital allocation.
Title: Re: AT - Atlantic Power Corp
Post by: petec on March 07, 2018, 12:49:32 AM

$70mm is simply the remaining EBITDA for FY2025 if you model off each PPA until expiration.   The reality is that, contractually, this number drops to $19mm in FY2028.   

But as I pointed out above, you can easily identify $400mm+ of cash value from selling these assets after they expire instead of renegotiating new PPA's (assuming sales at 2x EBITDA which seems highly conservative).   

It seems obvious to me that the current equity value can be salvaged simply through intelligent capital allocation.

Thanks. Playing devil's advocate, you won't get 10x ebitda if ebitda is going to drop by 70% over the next 3 years, and it is quite possible that some of these assets won't be saleable - I think we have to entertain the possibility that the energy markets get seriously disrupted over the next 5-10 years and that some assets are worthless. I'm not saying you should place a high probability on that, but watching what's happened in Chile and elsewhere over the last couple of years, I have to entertain the possibility that this is not a normal cycle.

That uncertainty is enough to keep me in the prefs but I can see the attractions of the common.

Any idea what the hydro plants would earn if the PPAs reset to current price levels? I think they currently earn c.$40m.
Title: Re: AT - Atlantic Power Corp
Post by: SnarkyPuppy on March 07, 2018, 04:42:34 AM

$70mm is simply the remaining EBITDA for FY2025 if you model off each PPA until expiration.   The reality is that, contractually, this number drops to $19mm in FY2028.   

But as I pointed out above, you can easily identify $400mm+ of cash value from selling these assets after they expire instead of renegotiating new PPA's (assuming sales at 2x EBITDA which seems highly conservative).   

It seems obvious to me that the current equity value can be salvaged simply through intelligent capital allocation.

Thanks. Playing devil's advocate, you won't get 10x ebitda if ebitda is going to drop by 70% over the next 3 years, and it is quite possible that some of these assets won't be saleable - I think we have to entertain the possibility that the energy markets get seriously disrupted over the next 5-10 years and that some assets are worthless. I'm not saying you should place a high probability on that, but watching what's happened in Chile and elsewhere over the last couple of years, I have to entertain the possibility that this is not a normal cycle.

That uncertainty is enough to keep me in the prefs but I can see the attractions of the common.

Any idea what the hydro plants would earn if the PPAs reset to current price levels? I think they currently earn c.$40m.

So I agree with you that a 10x multiple on a $70mm ebitda figure about to drop to $19mm is not a correct way of looking at it.   But can you respond to my "downside scenario" that I posted on the prior page?

Basically I'm taking the sum of the remaining contracted EBITDA from 2025 onward (at a haircut to account for time value) and then selling off the assets at 2x prior EBITDA per asset.   Does 2x EBITDA not seem conservative even in a severe downturn from todays already low prices?
Title: Re: AT - Atlantic Power Corp
Post by: petec on March 07, 2018, 05:03:38 AM

$70mm is simply the remaining EBITDA for FY2025 if you model off each PPA until expiration.   The reality is that, contractually, this number drops to $19mm in FY2028.   

But as I pointed out above, you can easily identify $400mm+ of cash value from selling these assets after they expire instead of renegotiating new PPA's (assuming sales at 2x EBITDA which seems highly conservative).   

It seems obvious to me that the current equity value can be salvaged simply through intelligent capital allocation.

Thanks. Playing devil's advocate, you won't get 10x ebitda if ebitda is going to drop by 70% over the next 3 years, and it is quite possible that some of these assets won't be saleable - I think we have to entertain the possibility that the energy markets get seriously disrupted over the next 5-10 years and that some assets are worthless. I'm not saying you should place a high probability on that, but watching what's happened in Chile and elsewhere over the last couple of years, I have to entertain the possibility that this is not a normal cycle.

That uncertainty is enough to keep me in the prefs but I can see the attractions of the common.

Any idea what the hydro plants would earn if the PPAs reset to current price levels? I think they currently earn c.$40m.

So I agree with you that a 10x multiple on a $70mm ebitda figure about to drop to $19mm is not a correct way of looking at it.   But can you respond to my "downside scenario" that I posted on the prior page?

Basically I'm taking the sum of the remaining contracted EBITDA from 2025 onward (at a haircut to account for time value) and then selling off the assets at 2x prior EBITDA per asset.   Does 2x EBITDA not seem conservative even in a severe downturn from todays already low prices?

Apologies - should have said that I found your prior post a good framework and very useful.

At face value yes, 2x ebitda looks conservative, although I haven't done enough work on where prices sit today vs history, or on operating leverage, to have a clear sense of how much ebitda might drop. If 2x historic ebitda is 10x future ebitda then maybe it's not so conservative.

What gives me some comfort is the hydro and gas assets. Hydro has a marginal operating cost of almost zero so those plants should run profitably in almost any scenario. And even if solar and wind start setting the marginal price for new capacity (rendering replacement value irrelevant for other plants), there's a good chance that gas plants are paid a capacity charge to keep them alive to smooth out the supply from renewables. But in that worst case scenario I don't have enough knowledge to put numbers on any of those assumptions, beyond saying the ebitda should cover the pref dividends once the debt is gone!

I'm not arguing against an investment in the common. I'm simply saying that there is a small chance that this industry has changed forever and history won't then be a good guide to future ebitda or even to which plants are needed.

It goes without saying there are huge challenges to overcome before solar and wind set the marginal price for new capacity. However, their costs are dropping like a stone, money is pouring into storage research, smarter grids and the IoT are improving our ability to match demand to supply rather than the other way around, and where renewable supply as a % of the total has blown past the 20% level, which was assumed to be the cap, it doesn't seem to be a big problem. So there's a chance the current "cycle" is in fact a permanent change.
Title: Re: AT - Atlantic Power Corp
Post by: petec on March 08, 2018, 12:32:52 AM
An additional thought.

The convert trades at 99 for a 6.17% yield to maturity. That's a 50% return, so that's the equivalent of having the stock and it going to about 4.

You also get all the equity upside from $4.20 to the sky due to the convert.

So you're giving up 20c of upside from $4 to $4.20 in return for converting equity downside into bond downside.

I realise I sound like I am arguing against the equity. I'm not - I don't really have an opinion on it and wouldn't try to talk you out of it. But I'd be very tempted by those converts if I was as bullish on the equity as you are.
Title: Re: AT - Atlantic Power Corp
Post by: doc75 on April 07, 2018, 06:26:32 AM
Just noticed that ATP has been in the market buying the common and preferreds. As per SEDI, in March they repurchased:

3,029,840 common shares at around $2.10 (USD)
237,500 of the series A pref @ $15.25
83,095 of the series C pref @ $17.80

Title: Re: AT - Atlantic Power Corp
Post by: mike on April 07, 2018, 12:20:36 PM
Just noticed that ATP has been in the market buying the common and preferreds. As per SEDI, in March they repurchased:

3,029,840 common shares at around $2.10 (USD)
237,500 of the series A pref @ $15.25
83,095 of the series C pref @ $17.80

What is your source? The link below shows that they can buy up to 1k shares of A pref each day

https://investors.atlanticpower.com/2017-12-20-Atlantic-Power-Corporation-and-Atlantic-Power-Preferred-Equity-Ltd-Announce-Normal-Course-Issuer-Bids-for-the-Companys-Convertible-Unsecured-Subordinated-Debentures-Common-Shares-and-Preferred-Shares
Title: Re: AT - Atlantic Power Corp
Post by: SafetyinNumbers on April 07, 2018, 12:24:52 PM
Just noticed that ATP has been in the market buying the common and preferreds. As per SEDI, in March they repurchased:

3,029,840 common shares at around $2.10 (USD)
237,500 of the series A pref @ $15.25
83,095 of the series C pref @ $17.80

What is your source? The link below shows that they can buy up to 1k shares of A pref each day

https://investors.atlanticpower.com/2017-12-20-Atlantic-Power-Corporation-and-Atlantic-Power-Preferred-Equity-Ltd-Announce-Normal-Course-Issuer-Bids-for-the-Companys-Convertible-Unsecured-Subordinated-Debentures-Common-Shares-and-Preferred-Shares

He stated his source as SEDI but you can't link there so you can go to this link. 

https://www.canadianinsider.com/node/7?menu_tickersearch=ATP+%7C+Atlantic+Power

Every NCIB on the TSX also has a one block trade a week exemption on top of the daily limit.
Title: Re: AT - Atlantic Power Corp
Post by: dr.malone on May 14, 2018, 05:48:23 PM
Anyone see their latest results and the annual letter by the CEO? I think the situation is getting much clearer for the company as they continue to de-lever and we finally saw meaningful buybacks YTD. It seems they are patiently sitting on the bid for the buyback and most likely continuing to buy around the 2.15-2.20 level.

It's hard to see how this stock could fail to compound annually at 10-15% for the next 3-5 years... but then again, i've been wrong for the past year on this name...
Title: Re: AT - Atlantic Power Corp
Post by: wisowis on August 12, 2018, 05:48:48 PM
These guys continue to do exactly what they said they'd do.

Buy back shares (4.3 million common so far this year, and at least $6 million CAD worth of preferred).
Reducing debt, on track to reduce by 100 million in 2018.
Re-affirmed guidance of 2018 Project Adjusted EBITDA guidance of $170 to $185 million.

From their AGM, there is a slide on "Improved Shareholder Alignment":
And Increased Share Ownership Requirements:

I will just leave an excerpt from their latest annual report, where they answer the question "What can you do about the share price"? (the whole letter is great)

Quote
What can you do about the share price?

Our approach is to focus on protecting and, if possible, growing the intrinsic value per share of the
business. We try not to promote the shares. We view the market quotation as an invitation to buy (as
we have been doing, with $31 million of Company and insider purchases) or to sell shares. We try to
provide investors as much information as we can, but to make an estimate of value you must have a
view of what power prices will be in five, seven, or ten years.

We have made enormous improvements in the business. The share price has not reflected those
improvements. Although we are not focused on moving the share price over short time periods, we
believe it would be better if our shares traded closer to intrinsic value.

Things that might narrow the valuation gap over time include higher power prices, growth, or
significant share repurchases. Higher power prices would drive better post-PPA outcomes for us. Such
an environment might rerate the sector, including our shares.

Growth, organic or external, is highly unlikely to totally offset the expected decline in EBITDA
from current levels to post-PPA pricing as the decline is too large. As noted earlier, our debt should
decline faster than EBITDA if we continue aggressive debt repayment, resulting in declining leverage
ratios in 2019 and beyond. At that point the lower leverage may rerate the shares.

In either case (higher power prices or growth), if we continue to shrink the number of shares
outstanding, the value of the Company on a per-share basis should grow. We will remain focused on
improving the value of the business and we believe that at some point the public market will reflect
that value, or a buyer will emerge for the Company.
Title: Re: AT - Atlantic Power Corp
Post by: awindenberger on August 24, 2018, 06:20:30 PM
AT is my 2nd largest position for a year. I continue to be impressed with the execution of the management team. Its simply a matter of time before someone wakes up and starts buying up the stock.