SANDRIDGE MISSISSIPPIAN TR I SDTTU
November 19, 2020 - 12:10pm EST by
TheEnterprisingInvestor
2020 2021
Price: 0.12 EPS 0 0
Shares Out. (in M): 28 P/E 0 0
Market Cap (in $M): 3 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Liquidation

Description

This is not a long or complicated idea, but it is illiquid and a PA idea unless you can find a block.  Its boring and should be like watching paint dry.  It will require holding on for about 9 months. 

Sandrige Mississippian Trust I is liquidating.  SDTTU currently has about $3.3m cash (roughly the current market cap) in the trust and a royalty interest in oil and gas properties in the Mississippian formation. This has been marked down a lot over the years (you know, O&G assets...) and is presently carried at about $7.08m.  

SDTTU terminates at 12/31/2030 or if cash available for distribution is less than $1m on a TTM basis before then.  This occured in the Q ending 9/30/2020 and the trust will sell its assets, dissolve and distribute the net proceeds/trust assets.  

50% of that royalty interest reverts back to Sandridge at the time the trust dissolves, Sandridge also has a right of first refusal to bid on the trust assets and owns 26.9% of the trust interests.  

For context, there was another Sandridge Missippian Trust (II) that recently went through this exact same process.  Sandridge wound up buying the interest at a slight premium to the carrying value of the royalty interest.  In this case, assuming the mark is a decent indicator of expected proceeds and unitholders get half of that amount, there should be about $6.8m of cash available for distribution or about 24c.  Note the trust does not appear to be burning cash and could build some between here and liquidation.  In the most recent Q, there was 484k of royalty income and about 375k of cash expenses plus a build of the cash reserve.  We'd expect something similar between here and liquidation.  

The trustee has announced the liquidation and expects both the sale of the assets to be completed and cash distributed by Q3 of '21.  Sandridge II was a similar timeline, it took about 9 months (announced in Feb, distribution in Nov), so July seems realistic to us.  Sandridge II held a little extra cash back and we expect a subsequent distribution, but 85-90% came out on the first distribution.  

The main risks are that the interests are wildly mismarked or unsaleable to SD or anyone else and the trust burns cash between here and liquidation.  

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Sale and distribution

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