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May 17, 2012

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Column: MLPs Hitting the ATM

I wrote a post over at 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…

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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.

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