Steady 5%

Steady 5%

Financing's been so easy for utilities -- has been since the 1930s -- that it is hard to understand what's happening now. It is hard to understand, for example, how NISource (NI), a responsible and well-run utility serving 3.8 million people in Indiana, could have hit its 52-week low and be yielding 9%. Hard, until you recognize the realities of this new world and how NISource was having trouble, until Monday, rolling over paper that is due this year.
On Monday, NISource got $265 million in senior secured lending for two years to replace money due in November. If they didn't get it, they might have had either to issue a gazillion shares -- hence the decline in the stock -- or eliminate the dividend, or if worse comes to worst, file bankruptcy. Believe me, this "finance in 2009 or die" element is playing havoc with the whole economy, because the banks are the only entities that have protection and can get financed. Everyone else is being crowded out, including outfits like NISource, which are pretty respectable institutions and deserve money.
When you look at the 52-week-low list and then you look at the 2009 refinancing skeds, you can see why a company like NISource got down there. Every company that has money due relatively soon is struggling mightily, and it makes their common stocks among the most dangerous out there. It doesn't matter, even if you are a utility with a consistent revenue stream. (Although even that's been challenged by some utilities with operational problems like Great Plains (GXP) last week and Ameron (AMN), which just slashed its dividend this morning because of poor earnings, somewhat complicated by a hedging loss.)
One day, another company won't be as lucky as NISource, which tapped into JPMorgan (JPM) to get its money. One day, a company will be allowed to default because the banks have had enough. And that's when the really depressing part of this stretch will begin.
I can't begin to tell you how many NISources are out there. Just to mention one that sticks out, take a look at all of the debt that soon comes due, for example, from Simon Property Group (SPG). This one's been sinking like a stone for the same reason as NI, and it has a huge and high-quality portfolio of the best shopping malls in the country. Doesn't matter. If you need debt rolled over the sellers are going to roll you over.
This leads me to the real punch line: You want to avoid the rollover problem? Stick with companies that generate huge cash flow: Wal-Mart (WMT), McDonald's (MCS), General Mills (GIS), Johnson & Johnson (JNJ). These are the anti-NIs and -SPGs. These are the survivors at a time when I thought that REITs and utilities would be precisely what could get us through this awful period...

I own it

PEG of 3.48, and it pays a yield of 7.0%.

10/29/2008

4.9%

buy

Downgraded by Lehman Brothers from Equal-weight to Underweight

Prospect to form MLP with asset dropdowns

keep it or let it go . it doesn't seem to move very much