Atlantic Power Corp. (ATP.TO)

After Q1, we saw their payout ratio was between 65% and 75%. Asset sales were going through. Estimates NAV to be about $5.50. Highly levered. What really hit this one was when the yield spike went up because this is one that is most levered to a 100 basis point rise in bond yields. For every 100 basis points move in interest rates, he sees the free cash flow been impacted between 6% and 12% from 2014 to 2017 because of the way there debt matures. 9% dividend. Would try to accumulate this on weakness if you are “risk tolerant”.

They cut their dividend to be sustainable and that is a positive. They have a lot of assets in the US so if the US does well, they will benefit. He takes a while to warm up to a name after a dividend cut.

Recently slashed its dividend and the stock cratered with it. Even so, projected earnings for this year and next, still don’t cover the dividend. If you get down to cash flow, they can sort of muddle through and maybe it looks alright.

Convertible debentures (ATD.DB.A) for yield within an RRSP. Coupon is 6.25% and currently trades in the $83-$84 range. Actually are currently trading at around $90.50. Very expensive. As a convertible bond they have a massive 1.51% premium and the yield to maturity on the bonds is 9% versus 8.74% on the common. He would be buying the common, not the convertibles.

There is a Class-action lawsuit so obviously there are some aggrieved shareholders who felt the recent sale of assets was very badly handled. Obviously, the company had some issues and had to raise some cash. Effectively the last 5 years progress has been wiped out. This has been a mess all around.

They have hit a number of hiccups. Their assets are weak, corporate governance is not great, there is litigation risk, and they cut their dividend. They have been killed on the share price. They are going to have to issue equity and get their capital structure in line. There will be a lot of volatility.

Class action law suit coming out of US based on their inability to pay the very high dividends. It will be a while. Play the sector with a ZUT-T.

(Market Call Minute.) Even after the 65% cut of dividend, there is a possibility that the payout ratio could be over 100% at the end of this year, based on their contract expiring.

A couple of contracts have expired so the price they were getting for power generation will be a lot lower. Because of this, it was prudent to cut the distribution to make it sustainable however the market was not expecting the magnitude of the cuts. His sense is that things will clear up in the next week or so and that would be the time to look at it. Could be a takeover target if it became really cheap.

(Market Call Minute.) Dividend has been cut 65% and the stock has been clobbered. There is a huge amount of issues with a re-contracting of the plants. Thinks it will be dead money for some time.

Just cut their dividend by 50% so there was a big drop in the stock price. Relative Strength is oversold right now.

There are better alternatives, such as a Algonquin Power (AQN-T) where you are going to get more dividend growth and more sustainability. Expects power prices to be relatively range bound in the next 12-24 months, if not potentially decline.

5.95% bonds maturing 2036. He bought these at $.63 on the dollar. Feels the risk/reward is pretty good.

Power generation plus has a small transmission business as well. 92% payout ratio so chances of a dividend increase is pretty slim. Average duration of the in place power purchase agreements is below 10 years while other power companies are in the mid teens to above. Sustainability is not as great as one of the other power names. 8.2% yield.