- Normally when a distribution is reduced massively, it would be expected that the risks of seeing further reductions have largely faded.
- This can unfortunately not be said for Genesis Energy and their unitholders who saw a massive 73% distribution reduction earlier in 2020.
- Their operating cash flow saw a very large impact from this downturn and unless it improved significantly during the third quarter of 2020, further distribution reductions are likely inbound.
- This has caused their leverage to soar higher and once again unless they see a sudden and significant earnings rebound, they could breach the covenant on their credit facility.
- Whilst their very high distribution yield of over 12% seems enticing, the risks surrounding this investment mean that I believe a neutral rating to be appropriate.
For further details see:
Genesis Energy: Very High Yield And Very High Stakes Heading Into Q3 Reporting