Altera Infrastructure LP Suspends Preferred Distributions

Early today PTrader posted on the Reader Initiated Alerts page that Altura Infrastructure Partners suspended their preferred unit distributions. Thanks for the early post.

The announcement is here.

Altera is controlled by giant Brookfield Business Partners (BBU) which has assets of over $55 billion and one might have assumed that BBU would not let this happen–well think again.

Right now the 3 issues from Altera are trading in the $9.50/shares area–all down around $15/share.

All of these issues are ‘cumulative’, but there is no guarantee that these will be paid anytime soon as the company has struck a deal with their parent (BBU) for debt restructuring that will not allow dividends until certain milestones are met.

21 thoughts on “Altera Infrastructure LP Suspends Preferred Distributions”

  1. Baby getting thrown out with the bathwater. Looks like the BPY preferreds are taking a hit on this ALIN news.

    1. This is a good thing in that it gets people to focus on the real credit of the borrower, not just on the name “Brookfield” or any other name. If you want BAM credit buy BAM or a BAM preferred or one guaranteed by BAM. Such guarantees, if they exist, are right there in the prospectus. For example:

      https://www.sec.gov/Archives/edgar/data/0001001085/000110465920126433/a20-36018_4fwp.htm

      The magic words: “Fully and unconditionally guaranteed, on a subordinated basis, by Brookfield Asset Management Inc.”

      1. I think if people were focusing on the BB+ credit rating of these BPY preferreds, they wouldn’t be selling. I think you can mark that rating down to BB to be conservative since this is mall and office properties but even then, these prefs are a good value.

  2. I think Brookfield is being unfairly blamed here. They are a good faith actor that bought a bad company.

    ALIN was originally TOO which was the abused and molested child of TK. The “dropdown” model in shipping is for the parent to sell overpriced ships to their children who are MLPs. The MLP structure allows them to hide the annihilation of equity and negative GAAP earnings through the magic of DCF accounting.

    The abuse was exacerbated by a shipping downturn that revealed the emperor wore no clothes. Brookfield swooped in and bought out TOO when it was in trouble and tried to turn it around. They lent the company money to roll pending debt, suspended the common div (even though they own all the common), and implemented a new strategy. But, the turnaround hasn’t worked out as planned.

    Far from screwing minority preferred holders, Brookfield gifted them dividends for as long as they could. Now it’s simply untenable. Brookfield is sharing the pain of preferreds by suspending cash payment on their hundreds of millions of debt (taking PIK instead).

    Probably Brookfield comes out okay in the end. Maybe the company survives and lives to pay the preferreds. Or maybe Brookfield loses their equity investment but ends up owning the company for the price of the debt via bankruptcy restructuring. Regardless, I think it’s unfair to say that Brookfield acted in bad faith to preferred holders.

    1. Also, the writing has been on the wall with these preferreds for some time. There have been many warning signs: credit rating downgrade to Ca2 with negative outlook, bonds trading at 15% YTM, negative earnings, company talking about doing a “strategic review” in their last earnings call.

      Despite warnings, sometimes people whistle past the graveyard in their reach for yield. When there’s no listed common stock, it’s imperative to look at other indicators and heed warnings.

    2. Be interesting to see how this affects other shipping companies stocks. Might be the case of the babies getting thrown out with the bath water.
      Been in and out of KNOP for years. Same model of parent company doing drop down’s . Just went Ex-dividend so all the harvesters will bail and you have 3 months for this story to play out and affect others in the shipping business.

    3. LI – once again you cloud the issue with facts. It is just as you indicate above. Brookfield rescued a bankrupt entity and poured a billion into the company. But for Brookfield this ship would have sunk years ago (good pun?).

      The debt holders and the preferred holders who have been getting paid at Brookfield’s expense for the last 4 years should write Bruce Flatt a thank-you note for his generosity. Now the party is over. The reorganization & restructuring that should have taken place 4 years ago will happen.

  3. It seems to be the same story with Brookfield. They entice you with nice dividends then you end up running with your tail between your legs. It happened with BPY in real estate, RA with their “real assets” that were really bonds now the Altera preferreds. I should have seen this one coming.

    1. ” It happened with BPY in real estate”

      All the BPY preferreds have been redeemed or are above par. They bought out BPY common at a 26% premium even though enclosed malls have been left for dead. Seems like they’ve treated investors fairly.

      1. LI – don’t cloud the issue with facts; let them hate on.

        The numbers speak for themselves. Not every deal Brookfield does turns out to be a rose but taken as a group the company has provided its shareholders with rich returns. +16% CAGR since 1985. Better than Berkshire.

        Not my numbers; run them yourself at portfoliovisualizer or similar.

  4. Another perspective on Brookfield ……

    Brookfield acquired an interest in Altera (then Teekay Offshore or “TOO”) in 2017. The company was a basket case at the time and teetering on bankruptcy. It’s then semi parent company was not willing and/or able to put in the kind of money that TOO needed.

    Going from memory here, but I’m quite sure that Brookfield has sunk in excess of a billion dollars into the company. Even so, Altera has disappointed. Bad business, bad management, bad whatever, that’s the case. As it sits now, Altera has substantial losses, negative equity (counting preferred as debt), and big debts (even without the preferred). It is hemorrhaging cash. It also has a going concern opinion its auditor.

    Put another way, Altera is functionally bankrupt. It’s going to have to be reorganized and recapitalized. I don’t see how that is avoided. The money is going to come from Brookfield, one way or another. Why in the circumstances should ALIN be paying dividends, to anyone?

    The truth is the preferred have been getting a free skate from Brookfield for a long time. Why else would the preferred of a company in this financial condition be selling at close to par? If the Brookfield name were not there they would have been selling for much less. But for Brookfield and its billion dollar cash infusion into ALIN it seems likely they would have gone bankrupt some time ago and the preferred would have gone away. Since Brookfield got involved, had you owned TOO-A/B until now, you have gotten about 8 bucks in dividends. That’s about 8 bucks more than you would have gotten had Brookfield never come into the picture.

    Combined, the 3 preferred issues have paid out more than $100 million in dividends since Brookfield came on the scene.

    Far from screwing the minority I think Brookfield has made a gift to them; they just decided to stop giving.

    My sense, for anyone interested, is that ALIN preferred have paid their last dividend. Preferred owners will end up with a small bit of a reorganized company. The cumulative aspect is worth zero. That’s my take.

    Brookfield is a hard headed, sharp pencil operation. They are shareholder friendly in the extreme, to THEIR shareholders. $10,000 invested in BAM in April, 1985 (first data) is now worth more than 2 million. By comparison, with BKR you would have “only” 1.6 million. Unarguably, BAM has been one of the best wealth generators of my lifetime.

    But that’s my take. But if you don’t like Brookfield then get even with them and buy the stock!

    1. Your argument is that Brookfield didn’t screw oldtime investors of TOO. Maybe so. Not true for recent investors of ALIN or oldtimers who chose not to sell because it was part of Brookfield. Dumps and spinoffs are never fair to those who own the wicked stepchild.
      Wonder if there was any selling on inside information. I’m sure SEC is right on that.

  5. I commented here months ago that Brookfield is well known for being hostile to minority investors.

    1. I don’t follow this one, but the chatter is they are redeeming existing paper with higher rate 2026 PIK paper issued to Brookfield, i.e., complaint is that the preferred is getting squeezed out by the new debt in a senior position.

      Might be a long wait for the accumed divvies. (“No distributions on the Preferred Units will be permitted without noteholder consent while the new PIK notes issued in the exchange transactions described above remain outstanding.”)

      Like I said, I don’t follow this one, but I noticed its apparently an LP. IMHO, LP’s can sometimes have weird tax consequences, like generating taxable 1040 income when you don’t get any RM (real money.) Will be interested in seeing how this plays out, while watching safely from the sidelines.

      Just my opinion.

      1. BearNJ–Brookfield Property Partners (Brookfield DTLA Fund) has a 7.625% preferred from the MPG acquisition in 2013–not paying on that one and I think the accumulated distributions are in the 15-$20 area. Shares trade at 13.60 today. It is DTLA-A.

          1. 2WR, that article has a few problems. First, the co-investors have an option to liquidate their equity interests in 2023, but they aren’t required to. So there’s definitely no guarantee that the DTLA story ends in 2023, for better or worse.

            The big question is how much is the common equity even worth post-pandemic? Is it even positive any more? If not, how much of the preferred is covered in a liquidation? If you don’t even attempt that analysis, it’s a bit premature to assume the preferreds will be paid off at full liquidation value in just 2 years from now.

            If the common equity has modest positive value, but could potentially grow, the outside investors might decide to kick the can 5 years and see what things look like in 2028. If it is negative value, when would they decide to sell the assets and close up shop?

            But let’s say that the outside investors want out in 2023. Is there some creative way that Brookfield can address that without paying off the preferreds? I don’t know, but I wouldn’t be surprised.

            But I think the number one concern is what is the company even worth now? I don’t have any insight on DTLA office space, but this company was heavily leveraged pre-pandemic, so I wouldn’t be shocked if there is no equity to pay out.

            1. KC – I probably should have been more specific…..Bulldog’s owned DTLA- for as long as I can remember…. It’s more an example of what they do than perhaps their best story situation going right now….. They’re activists and got into this one when prospects for recovery were probably much higher than they look now……. But rather than bail, they came to the forefront to represent the shareclass…. it’s the kind of thing they do…. I follow DTLA- from afar and opinion wise, I don’t think I’d disagree that there’s a long way to go for them to get whole on this one…. but in general, I like what they (Goldstein and Dakos) do… Currently we’re waiting on a rights issue to be priced to replace the called SPE-B convertible preferred with another one…. It’ll be kind of an odd one where they give shareholders rights for the issuance of a new preferred and then might possibly use some of the proceeds of the new preferred to tender for the common probably at 99% of NAV if it’s still trading at a substantial discount… At the time they issued SPE-B the terms for a convertible preferred were attractive @ 3.50% and reasonable premium to current price.. Right now who knows what will be considered “attractive” in a new 5 year convertible preferred? hopefully not just a mere pittance. Original plan for the rights issue was published June 15 with June 17 update – https://www.sec.gov/Archives/edgar/data/897802/000089418921003755/speeopps_n-2.htm

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