Wednesday, November 18, 2009

Stonemor Partners dsiplays ugly cost of capital (STON)


Ugh. Here's some "price discovery" that you'd rather not see.

Cemetery and Funeral home operator Stonemor Partners (STON) released details about the recent $150million debt offering they completed.

LEVITTOWN, Pa., Nov. 18, 2009 (GLOBE NEWSWIRE) -- StoneMor Partners L.P. (Nasdaq:STON - News) ("StoneMor") announced today that its wholly owned subsidiaries, StoneMor Operating LLC, Cornerstone Family Services of West Virginia Subsidiary, Inc. and Osiris Holding of Maryland Subsidiary, Inc. (together, the "Issuers") priced a private offering to eligible purchasers of $150 million aggregate principal amount of Senior Notes due 2017 (the "Notes"). The notes mature on December 1, 2017 and will bear interest at a rate of 10.25% per year, payable semi-annually on June 1 and December 1 of each year, beginning on June 1, 2010. The Notes are offered at an initial offering price of 97.352 percent of par, which equates to an effective yield to maturity of approximately 10.75%.

10.75% would be an attractive return ON CAPITAL, but in this case it's what StoneMor must pay to get ACCESS to capital. As for why their borrowing costs are so high, take a look below. 2008 pretax earnings are 30% below 2005 despite revenue increasing by 80%.



With "run-rate" Free Cash Flow around $13million, one can make money purchasing these shares. But it needs to be done when the Free Cash Flow Yield exceeds the cost of capital, which is currently does not...




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