ATLAS RESOURCE PARTNERS LP 9.25% Snr Unsecured 2021 049296AE6
August 26, 2015 - 9:13am EST by
Akritai
2015 2016
Price: 57.00 EPS 1.44 1.35
Shares Out. (in M): 95 P/E 2.13 2.27
Market Cap (in M): 292 P/FCF 2.45 2.09
Net Debt (in M): 1,492 EBIT 290 291
TEV: 1,984 TEV/EBIT 20.55 17.70

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Description

ATLS has been written up several times on VIC, most recently on October 25, 2014 by cwtdal. Given it has
been almost a year and the opportunity has changed with the Targa sale in late 2014 (see the 10/25/2014
writeup for further details) and E&P sell off; it is time to revisit the name. This write-up is structured to go into
the entire ATLS family.
 
Trade
Primary trade: Buy ARP 9.25% 8/15/21 unsecured bonds at 57, for an YTM of ~22%.
 
Secondary trade: Buy ARP units at $3.06, distribution yield of 42.5%
 
Bonds
 
My favorite trade in the ATLS structure are the 8/15/21 9.25% unsecured bonds in ARP, trading at 57 for an
YTM of 22%, a current yield of 16% with a strong hedge book to protect against the recent plunge in oil prices.
ATLS’ management team is currently reviewing scenarios to reduce leverage and enhance unit value, in any
scenario it’s hard to see where an action does not positively impact the bond holders. ARP has 85% of projected
margin hedged or fee-based through 2018, reducing your basis from 57 to 29 with three years of coupons.
In discussions with management and via company calls, management is actively looking to reduce leverage,
benefiting the more expensive unsecureds if a bond buyback occurs in the event of a strategic transaction. In
event of no deal, you’re clipping 9.25% a year with hedges to last you until 2018+, with potential upside for the
less hedged commodity – natural gas.
 
 
ARP’s bonds trade wider than their upstream MLP as a group (excluding LINN’s) of ~15%. ARP’s bonds can
be paired with some of the weaker more levered E&Ps (i.e. CRK’s secured 2021 at 17%, CHK’s 2021s are at
13%, a HY MLP basket at 15% YTM) or a high yield energy index (Citi’s HY energy index trades at 10%
YTM).
 
 
Units
 
My second favorite trade in the structure is the ARP units, trading in the low $3s with a distribution yield in the
low 40%s. While the market is pricing in a distribution cut, hedges allow ARP to maintain its distribution for
the near future. ARP may decide to reduce its distribution and use cash to pay down debt at ARP, but given
negative cash flow at the HoldCo (ATLS), HoldCo debt & the ARP distribution of cash to ATLS required for
development of the growth subsidiary (Atlas Growth Partners - AGP), a complete distribution elimination is
unlikely.
 
Atlas Energy Group, LLC (ATLS)
 
Cap Structure of ATLS
 
 
At the qtr end, ATLS (stand-alone) had debt of $83MM ($74.5MM + $8.2MM unamortized discount) and cash
to ATLS of $13MM. ATLS consolidates ARP and AGP when it reports its financials.
 
Management expects to meaningfully reduce the debt at ATLS during H2’15 with the cash flow from its
ownership ventures (mainly ARP, suggesting the distribution from ARP is secure for H2’15).
 
Removing ARP from ATL’s H1’15 cash flow shows just how much the HoldCo needs ARP and the distribution
ARP gives it.
 
 
ATLS is a HoldCo consisting of the below assets:
 
1) Atlas Resource Partners, L.P. (“ARP”)
 
ARP is the largest source of value within the ATLS structure.
 
 
ATLS owns:
 
100% of the general partner Class A units
All of the incentive distribution rights (“IDR”)
~25.0% limited partner interest (20,962,485 common and 3,749,986 preferred limited partner
units)
 
Core Business
 
ARP's assets focus on shallow decline production in the Appalachian Basin, the Fort Worth Basin, the Raton
Basin and the Mid-Continent region, among other areas as well as development locations in the Eagle Ford
Shale in South Texas. ARP has proved reserves of 1.4 trillion cubic feet equivalents, 86% gas, 77% developed,