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June 21, 2015

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MLP Week Thoughts: Does the Fun Ever Start?

MLPs showed signs of life early in the week gave way to further selling in the back half of the week for MLPs. The MLP Index bounced Monday (+1.3%), and faded throughout the week, before eventually capitulating Friday (-1.6%) to finish the week down 0.5%, a fifth straight week of declines.
Weekly Review_6-19
On a price only basis, the MLP Index established a new 52-week low Friday. Energy sentiment across the market remains negative. The S&P 500 Energy sector was the worst performing in the S&P 500 at 0.5%. Declining interest rates helped utilities and the broader stock market, while oil and NGL prices seemed to pull MLPs lower, again.
The index is 19.8% off its high from last August (including distributions), and is down 6.6% since the last day of the NAPTP conference in May. On its way to setting a new trough post-conference, MLPs have declined in 13 of 19 trading days.
In perhaps my most obscure pop culture reference ever, the title above comes from a 10 second Comedy Central promo featuring Mike Myers from 1999 that somehow stuck in my head ever since, and that I somehow found on the Internet. It captures the mood of the MLP market from my perspective.
Hopefully everyone is (or was depending on when you read this) able to separate themselves from the market this weekend and enjoy Father’s Day. Also, hopefully watching another chapter in the slow demise of the once-great Tiger Woods at the U.S. Open doesn’t remind you of MLPs in any way…
Poll Question Recap
Last week’s poll question asked what valuation read-throughs could be gleaned from the high EBITDA multiples paid for the Hess Midstream assets by GIP and the Hiland assets by KMI. The winning answer was that the high multiple was more reflective of the GP value embedded in the Hess Midstream acquisition that reflective of MLPs being undervalued. Second highest result (33%) was the answer that the multiple indicates MLPs are undervalued. Interestingly, 18% of you said it meant MLPs were overvalued, and 15% of you didn’t think it meant anything about MLP valuation.
Poll Question
This week, I want your opinion on the drivers of recent MLP weakness, but I did not include an “all of the above” option, because chances are all of these are playing a role.
Sorry, there are no polls available at the moment.
Winners & Losers
PBFX led all MLPs this week (not counting the penny stock takeout of NKA), because PBFX’s sponsor (PBF Energy) acquired a Louisiana refinery, and estimated an additional $30mm worth of MLP-qualifying EBITDA came along with it. No other top 5 performing MLPs had any news. NGL traded up sharply on heavy volume in the final minutes of trading Friday on no news, vaulting into the top 5 for the week.
Not shown on the chart below, EPD was down almost 3% Friday, closing at its lowest point since December 2013. EPD is now 25.5% off of its 52-week high, widely underperforming the index of which it represents more than 17%. So much for safety in large-cap MLPs…
Top5Bottom5_6-19-15
On the downside, AZUR’s equity offering derailed its stock price in a big way. NSLP made it two straight weeks in the bottom 5 as well. SXCP was slammed on news that Haverhill Chemicals (a customer of SXCP) would be permanently shutting down a facility.
Top5Bottom5_6-19-15_chartOn a year-to-date basis, the top 5 shifted around a bit this week, with DKL rising to 2nd place, leapfrogging TLP and a few others. CLMT and NGL jumped in to the top 5, replacing USAC (-8.8% this week) and MMLP (-6.6%). There is still a small cap bias among the top 5, while the bottom 5 is dominated by coal and E&P MLPs.
Top5Bottom5_6-19-15_YTD
Top5Bottom5_6-19-15_YTD_chart
GP Holding Companies
There was limited follow-through week over week for individual GP holding companies. TEGP and ATLS led the way last week, and underperformed this week. WMB seemed to catch a bid, perhaps helped by ramping volumes at Geismer. PAGP and ENLC clawed back some of their losses from last week, while AHGP continued lower.
Top5Bottom5GPs_6-19-152
Top5Bottom5GPs_6-19-15_chart
News of the (MLP) World
It was quite an active week for MLP press, and for the MLP equity printing press. Two MLP IPOs launched and two small cap MLPs executed very challenging equity offerings. Also, we got a series of drop down acquisitions in the U.S. (and a big one in Canada). Also, an MLP that had basically been slowly dying since it went public, was acquired for a mega premium to its recent trading price.
News-of-the-World
Capital Markets

  • Green Plains Partners (GPP) launched $200mm MLP IPO of 10.0mm units with a midpoint price of $20.00/unit (8.0% yield based on MQD) (prospectus)
    • Expected to price 6/25/15
    • GPP provides ethanol and fuel storage, terminal and transportation services through terminals, storage tanks, and transportation assets
  • CNX Coal Resources (CNXC) launched $200mm MLP IPO of 10.0mm units with a midpoint price of $20.00/unit (10.25% yield based on MQD) (prospectus)
    • Expected to price 6/24/15
    • CNXC was formed by CONSOL Energy, and operates thermal coal mining operations in Pennsylvania
  • Azure Midstream (AZUR) priced public offering of 3.5mm units at $14.17/unit, raising $49.6mm in gross proceeds (press release)
    • Overnight offering, priced at 6.7% discount to prior closing price, and traded down another 2.6% from pricing in the next session
    • Use of proceeds: to repay borrowings
  • CrossAmerica Partners (CAPL) priced public offering of 4.6mm units at $31.45/unit, raising $144.7mm in gross proceeds (press release)
    • Overnight offering, priced at 4.7% discount to prior closing price, and traded down another 3.4% from pricing in the next session
    • Use of proceeds: to partially fund acquisitions announced this week
  • Sempra Energy (SRE – a $25bn market cap, California-based utility) announced plans for an MLP called Sempra Partners (under the ticker SREP) (press release)
    • SREP will have a combination of MLP-qualifying midstream assets owned by the MLP and taxable yieldco-type assets owned by a corporate subsidiary of SREP
    • SREP has not filed its initial registration statement yet, but expects to in 2H 2015
  • Bowie Resource Partners (BRLP) files initial registration statement for $100mm MLP IPO (filing)
    • Coal mining MLP, with multiple sponsors, including a subsidiary of Trafigura
    • Who would have thought the 2014-2015 time period would see a resurgence in coal MLP IPOs, even as existing ones suffer
  • Energy Transfer (ETP) priced $3.0bn of senior notes (press release), including:
    • $650mm of 2.5% senior notes due 2018
    • $350mm of 4.15% senior notes due 2020
    • $1.0bn of its 4.75% senior notes due 2026
    • $1.0bn of its 6.125% senior notes due 2045

M&A / Growth Projects

  • CrossAmerica Partners (CAPL) announced drop-down and third party acquisitions totaling $303mm (press release)
    • Real estate drop-down: CAPL agreed to acquire real estate associated with 29 newly-constructed stores from sponsor CST for $136mm
    • Fuel drop-down: CAPL agreed to acquire 12.5% interest in CST Fuel Supply LP from CST for $126mm (CAPL now owns 17.5% of CST Fuel Supply)
    • Third party acquisition: CAPL will acquire the One Stop convenience store network of 41 stores with 9 dealer fuel supply agreements in West Virginia for $42mm in cash
  • Niska Gas Storage (NKA) announced that it will be acquired by Brookfield Infrastructure for 222% premium (press release)
    • Brookfield to purchase all outstanding common units for $4.225/unit, valuing the transaction at $911.9mm
    • NKA had suspended its distribution earlier this year, after suspending its subordinated unit distribution prior to that
    • NKA went public in May 2010 in a $359mm IPO at $20.50/unit and never traded higher than $22.21/unit
    • NKA was down 56% in 2015 prior to the announcement
    • Looks like the Radnor, PA area will lose another MLP
  • Seadrill Partners (SDLP) announced $540mm drop down acquisition of West Polaris drillship (press release)
    • West Polaris is under contract with ExxonMobil through March 2018
    • Sponsor has lowered the day rate and acquisition cost to reflect challenging market, in an effort to manage re-contracting risk at the end of the contract
    • SDRL acquired the West Polaris via the exercise of an option for a total of $456mm
  • Navios Maritime Midstream (NAP) announced $100mm drop down acquisition of two VLCC tankers from sponsor (press release)
    • The VLCCs are expected to produce $18.7mm in annual EBITDA, implying 5.4x multiple
    • NAP expects to increase distributions 2.4% next quarter as a result of this acquisition
  • Enbridge, Inc. (ENB) announced $30.4bn drop down to Enbridge Income Fund (ENF), reiterated dividend growth rates, no clarity yet on when and how the US assets will get dropped to EEP (press release)

Other

  • Williams (WMB/WPZ) announced that its Geismer olefins plant is approaching its full expanded production rate, now running at 87% of the 1.95 billion pounds per year capacity (press release)
  • Florida Public Services Commission approved Florida Power & Light’s request to invest up to $500mm in natural gas development, and pass costs through to customer rates via a fuel chart (Utility Dive)
    • As more utilities look at this as an option, utilities may add more competition for acquisitions of mature natural gas properties, which seems like a marginal negative for E&P MLPs
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