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March 22, 2012

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MLP Capital Markets Update: Healthy as Ever

I was surprised to review the equity issuance numbers this week and notice that we are on record pace.  For some reason, it just hasn’t felt as active a quarter for the MLP capital markets than previous quarters.  As they say, however, numbers never lie, and MLPs continue to issue debt and equity as fast as it can be purchased.
The chart below shows total equity issued in the first quarter of each of the last 4 years.  The numbers below don’t include direct placements, such as the 8.0 million units of OKS purchased by OKE in late February.  They also don’t include the increasingly popular at-the-market equity issues.  All of those disclaimers aside, MLPs have issued more follow-on equity ($5.0 billion worth) this year than ever before in the first quarter.  As mentioned before, in healthy capital market times, you should expect to see equity issued rise every year given the growth of the sector overall and assuming a constant rate of equity issuance as a percentage of market capitalization.  The main takeaway is how far the sector has come since early 2009, when issuing equity was extremely expensive and challenging.

MLP debt capital markets are also running at record paces, although not in as dramatic a fashion.   MLPs have issued $8.3 billion in notes this year in the first quarter, up from $8.1 billion last year, but much higher than the 2009 total.  As the financial crisis gets farther and farther in the rearview mirror, the MLP capital markets continues to gain strength.  This quarter we saw the largest debt offer ever for an MLP when Linn Energy issued $1.8 billion in notes at 6.25%, and 4 MLPs had offerings of $1.0 billion or more.

Debt issued by MLPs in the first quarters of the last 4 years.

IPO Update

Capital markets activity for MLPs may have seemed lighter to me because after 6 MLP IPOs in the last quarter of 2011, in what felt like a rush for the exits before the Christmas holidays, there have been no MLP IPOs so far this year.  It turns out is not uncommon.  There has been only one IPO in the MLP space in the first quarter of any of the last 4 years, and that occurred last year with Kinder Morgan’s general partner $KMI executed its IPO.  I took a look back to the beginning of 1996, and since then, of the 77 MLP IPOs (not including GP IPOs), there have been only 14 IPOs executed in the first quarter.  The fourth quarter is far and away the most common IPO quarter.

Number of MLP IPOs since 1995, broken down by quarter.

The MLP IPO backlog is still fairly well stocked, and we’ve added one IPO to the backlog so far this year (unless I’ve missed one along the way, please let me know if I have).  See below for the updated list of 6 pending MLP IPOs.  There is a wide variety represented on the list, including compression, coal, propane dehydrogenation.  Not the typical MLP fare, so it will be interesting to see how these price and trade, particularly the coal MLPs given how poorly the smaller coal names have performed year to date.

Pending MLP IPOs

That’s the quick capital markets update, stay tuned for another post very shortly with a link to my latest post.  Its been a busy week for MLP M&A and capital markets so far and a busy week for me, so I’ll hit up the news of the week with tomorrow’s weekly wrap up posts.  Thanks for reading, pass it along.

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