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I help people and institutions manage money. My firm is called Guzman Investment Strategies, which is a Texas-based registered investment adviser.
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Category Archives: MLP Basics
Column: MLPs Hitting the ATM
I wrote a post over at equities.com that gives a brief rundown on an emerging MLP equity trend: at-the-market (ATM) equity offerings. since the beginning of 2009, MLPs have raised $5.6 billion in equity using ATMs. Only 10 MLP issuers have used this method to issue equity, and by my count there have been only 17 deals, but the pace and size of the deals is increasing.
ATMs are great for issuers, the cost in terms of gross spread and price disruptions is much smaller for ATMs than for regular overnight follow on deals. I think they will become very popular, even though the big investment banks might not like them because fees tend to be lower for ATMs. In fact, I even know of a firm that does ATMs, in case you were curious…
Update: You Are Here
While I’m here, might as well recount the brutal last few weeks for the market and MLPs. As it stands right now, despite oil dropping to near $90 per barrel, MLPs are outperforming the broader S&P 500 since the selloff began. The S&P 500 closed on May 1 at 1405.8. It’s been free fallin since, losing value in 9 of the last 11 trading days and dropping a total of 5.8% (5.6% counting dividends) to 1324.8. MLPs have done only slightly better, registering negative changes on 10 of the 11 trading days since May 1 and losing a total of 5.5% of value, but only -4.7% including distributions.
Year to date, stocks are still leading MLPs, with total return for the MLP Index roughly flat at -0.33% compared with +6.2% for the S&P 500, but the gap is narrowing. A chart of year to date price change is below, as you can see, MLPs are moving in lockstep with the S&P 500 since around April 1st.
We’re on track for another brutal day for all things risk today. As was the case last year heading into the NAPTP MLP Conference, MLPs are in the midst of a correction with the conference next week. The difference is that last year, MLPs were down more drastically and sooner than the broader market. I am guessing I’ll hear lots of “buying opportunity” and “throwing the baby out with the bathwater” talk from MLP management teams and research analysts. Historically, almost any time the MLP Index has dipped substantially has been a good buying opportunity, so that sort of attitude is probably appropriate. The key is to recognize the risk of a correction before it happens and to have cash available or to have some short protection on to insulate your portfolio from dips.
Disclosure: The information in this article is not meant to be financial advice, I am not your financial advisor and I am posting my comments for informational purposes only.
Winners and Losers: Copano Soup for You
Distribution ex-dates, oil and stock market prices being down, and at least $1.5 billion in new equity issued conspired to take down MLPs this week. GPs did very well, closing virtually flat on the week. Variable distribution MLP were the big losers, TNH, UAN and RNF in particular were hit hard, each was down more than 14%, with RNF’s 18.6% price drop leading the way down. MLP Index’s 2.5% price decline was the worst weekly loss since August 19, 2011, almost nine months ago.
RNO got a little bounce this week after dropping the most in the sector last week. In terms of secular growth MLPs (i.e. ones that go up more consistently than NRP and RNO’s bounce), OILT and CQP were both up big. CPNO’s earnings announcement and dissapointing guidance / distribution announcement saw its stock get slammed. Maybe CPNO gets frustrated enough to take a buyout offer from some other MLP that might be better able to monetize its assets. Chesapeake was down in tandem with its parent, CHK, particularly late Friday afternoon.
Not much to get excited about out in the economic and financial media, but maybe that’s a good contrary indicator of some potential positive shift going forward, or maybe not. We shall see.
Year to Date
Buckeye creeps into the YTD bottom 5 this week, after dropping another 7.1% this week, wow. It is very unusual to see ARLP and BPL in the bottom five this late in the year, but it speaks to the challenging fundamentals in their respective businesses, although BPL’s GP buyout and growth projects were self-made challenges. After another strong week (+4.2%), CQP is now up 41.7% for the year, not including distributions.
On a price basis (no distributions or dividends included), the MLP Index turned negative this week. Oil is now down 4% for the year, adding to the unpleasant environment caused by dropping natural gas and NGL prices. MLP pure-play general partners and variable distribution MLPs are still outperforming, but the variable distributions MLPs have come down to earth of late.
That’s all I got this week, moving to Texas in 12 days, posting might be sporadic as I coordinate that and the NAPTP Conference next week. Thanks for reading.
MLP CEO Compensation Review: The Anti-Aubrey
Bad news gets all the press. With the wild details that continue to emerge around compensation and activities of Chesapeake’s Aubrey McClendon, sometimes its good to highlight CEOs that are focused on their businesses and don’t need huge pay or sweetheart investment deals to incentivize them to get focused. To that end, I’ve released my annual look at which MLP CEOs get paid the most and which get paid the least.
Click here to check out the full article and detailed lists.
The CEO with the lowest compensation package on the list is Richard Kinder (and has been since 2000). He is sort of an anti- or bizarro- Aubrey McClendon. He gets paid $1 in salary and $26mm in dividends from stock he owns. Counting those dividends makes him the most highly compensated MLP CEO, but at almost no cost to the company (outside of the large IDR payments, but I believe those are unrelated in this context). No matter what you think of his company, he has left personal millions on the table for the benefit of unitholders, and unfortunately that is unusual these days. I think it would be more common if there were more “founder” CEOs out there like Kinder, Joe Craft and ones that have recently passed away like Dan Duncan and John Eckel, but for whatever reason as we see the MLP space mature, we’ll see more corporate and private equity backed CEOs than founder-types.
MLP Titans Rich Kinder and the late Dan Duncan (with stuffed lions).
